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80th Congress ) HOUSE 
1st Session 


ss | 


OF 


Union Calendar No. 1 

REPRESENTATIVES j Report 

I No. 1 



WARTIME ACCOUNTING PRACTICES OF THE UNITED 
STATES MARITIME COMMISSION AND THE WAR 
SHIPPING ADMINISTRATION 


January 3, 1947— Committed to the Committee of the Whole House on the 

State of the Union and ordered to be printed 

U vSv Confess . HoU£<2. . 

Mr. Bland, front the Committee on the Merchant Marine and 

Fisheries, submitted the following 

REPORT 

[Pursuant to H. Res. 38, 79th Cong.] 

The Committee on the Merchant Marine and Fisheries has adopted 
and ordered reported the following report on the wartime accounting 
practices of the United States Maritime Commission and the War 
Shipping Administration: 

WARTIME ACCOUNTING 

Pursuant to House Resolution 38, Seventy-ninth Congress, the Com¬ 
mittee on the Merchant Marine and Fisheries conducted an investiga¬ 
tion and study of the accounting practices of the Maritime Commission 
and the War Shipping Administration during the war years. The in¬ 
vestigation of the accounting system of these two agencies resulted from 
reports of irregularities in their accounts made by the Comptroller 
General of the United States concerning which the committee was 
informed early this year. Hearings were held on July 17, July 22, 
July 21, and on December 16, 1946, at which time representatives of 
the General Accounting Office, the Maritime Commission, the War 
Shipping Administration, and others were heard. For the informa¬ 
tion of all Members of the Congress, the findings, conclusions, and 
recommendations of the committee are set forth below. 

Because of the complexity and technical nature of many of the 
accounting problems involved, the committee retained as accounting 
advisers, Col. Sivert M. Wedeberg and Lt. Conidr. C. Wilbur Cissel, 
after canvassing the accounting departments of a number of leading 
universities for suggestions as to the most competent men available. 

94917—47-1 

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2 


ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


Ill addition to being certified public accountants, these men have taught 
accounting at Yale University and the University of Maryland, and 
were in the accounting sections of the Army and Navy during the war 
years; both also have a background of commercial-accounting experi¬ 
ence. Instructions given to these men by the chairman of the com¬ 
mittee were to make a thorough study of the accounting systems of the 
Maritime Commission and the War Shipping Administration during 
the war years, to bring all the facts into the open, to determine the 
relative merits of the charges of the General Accounting Office and 
the defenses of the Maritime Commission and the War Shipping 
Administration, and to “let the chips and the heads fall where they 
may.” The report submitted to the committee by these accountants 
is hereby adopted and approved by the committee and is contained 
in this report as appendix A. 

This is an interim report and deals only with the work of the 
Merchant Marine and Fisheries Committee so far accomplished. In 
many ways, however, the surface has just been scratched and it will 
be necessary for a wider and more complete investigation of the ac¬ 
counting practices to be made by the Merchant Marine and Fisheries 
Committee during the Eightieth Congress. In that investigation, 
our object will be to determine whether or not any actual loss has 
occurred to the Government through fraud or waste, what other losses 
resulted to the Government through failure to maintain adequate 
accounts, and, most important, what persons were to blame for the 
failure to maintain adequate accounting records. 

I. Charges by the Comptroller General 

In his audit reports on the accounts of the Maritime Commission 
and the War Shipping Administration for the fiscal years ending June 
1943 and June 1944, the Comptroller General of the United States 
made many serious charges of improper accounting practices and errors 
and omissions involving many billions of dollars of Government funds 
expended by these agencies. Because of the length of these reports 
and the vast number of transactions contained therein,fit is impractical 
here to set them out in full, but their complete text will be found on 
pages 253 to 320 of the printed transcript of this committee’s hearings. 
Several extracts from these reports, however, will suffice to show the 
general nature of the charges made and their broad scope. It should 
be noted at the outset, however, that the Comptroller General has 
not alleged that the vast sums of money involved were fraudulently 
taken or misused, but only that they were not properly accounted for 
in the records of the two agencies. 

In the Comptroller General’s report on the Maritime Commission’s 
accounting transactions for the fiscal year ending June 1943 the 
following statements appear: 

* * * The audit disclosed tliat the accounting methods and procedures em¬ 

ployed were not of the kind or type to result in the accurate recording of the finan¬ 
cial transactions to the extent necessary to properly and completely disclose the 
results of its operations or financial condition. 

It can be definitely stated that at no time during the fiscal year 1943 could 
the management of the Commission have been furnished current financial infor¬ 
mation of the character necessary for sound financial administration. 


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ACCOUN 


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RACTICES OF GOVERNMENTAL AGENCIES 


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Flie audit also disclosed that the absence of care and efficiency on the part of 
the Commission’s staff resulted in substantially inaccurate financial statements 
for 1943 being released as late as March 29, 1944. 

• The audit further disclosed that the internal audit is incomplete. 1 

******* 
iA. Accounting procedures and practices 

.1 1. The Commission’s method of preparing its financial statements as at June 
'30, 1943, was in three steps: 

(a) Balances taken from books totaling $8,058,391,378. 

(&) Changes and corrections of the foregoing figures in the amount of 
$1,857,877,238.14. 

( c ) Further, changes and corrections totaling $2,100,059,819.93 to close 
the gap between recorded fact and actual fact. 

These three steps disclose the incompleteness of the recorded accounting 
facts for current operational management purposes. 

2. Incomplete control over adjustments for closing the gap between recorded 
fact and actual fact resulting in accounts being indirectly affected that would not 
ordinarily be involved in a less complicated procedure. 

3. The internal audit is incomplete as evidenced by payments from the wrong 
appropriations in the amount of approximately $30,000,000 and the voluntary 
repayment by contractors and vendors of over $200,000 erroneous payments during 
1943. 


* * * * * * * 

C. Operational practices 

1. The Maritime Commission is operating without current financial informa¬ 
tion from the acounting records. 

2. The actual accounting and auditing work is not sufficiently coordinated with 
operations. 

3. The property accountability of the Commission is unsatisfactory. 

4. Receiving reports and property removal and transfer notices do not receive 
sufficient attention to protect the interest of the United States. 2 

Another example of the Comptroller General’s major findings ap¬ 
pears in his report on the War Shipping Administration’s accounting 
activities for the fiscal year ending June 1943 which states that: 

A. Accounting procedures and practices 

1. The administration’s method of preparing its financial statement as at June 
30, 1943-, was in three steps: 

(a) Balances taken from the books totaling $2,175,117,686.26, including 
$705,668,909.62 cash on deposit with the Treasury which was not adjusted. 

( b ) Changes and corrections of the foregoing figures in the amount of 
$326,413,253.96. 

(c) Further changes and corrections totaling $3,722,813,678.57 to close the 
gap between recorded fact and actual fact. 

These three steps disclose the incompleteness of the recorded accounting 
facts for current operational management purposes. 

2. Incomplete control over adjustments for closing the gap between recorded 
fact and actual fact. 

3. The internal audit is incomplete. 

A further example of the Comptroller General’s findings appears in 
his report on the Maritime Commission for the fiscal year ending June 
1944 in which lie states that : 

A. Incomplete or inadequate accounting procedures and practices 

1. The Commission’s book balances of more than $10,800,000,000 required cor¬ 
rections and changes of more than $5,500,000,000 before a presentation of actual 
facts could be made in the issued financial statements. 

2. There was incomplete control over adjustments for closing the gap between 
recorded fact and actual fact because of complicated procedures. 


1 A substantially similar statement regarding the War Shipping Administration’s accounts 
during the same year appears on p. 264 of the printed transcript. 

2 A substantially similar statement, excluding item 4, appears in the Comptroller General’s 
report on the War Shipping Administration for the same year at p. 277. 





ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


3. It is believed that past deficiencies in the Commission’s accounting and 
auditing accomplishments have been due in some measure to lack of clearly 
defined goals of auditing, accounting, and reporting objectives. 

4. The actual accounting and auditing work was not sufficiently coordinated 
with the operating divisions of the United States Maritime Commission. 

5. The property accountability of the Commission was unsatisfactory. 

6. The receiving reports and property removal and transfer notices did not 
receive sufficient attention. 

7. The set-off collection procedure, providing that amounts due from creditors 
be collected by deduction from vouchers payable, was not followed. 

8. Advances to contractors were erroneously charged direct to expense or 
construction and were not shown as accounts receivable. 

9. Employees handling cash and revenues were not bonded. 

10. The receipt of partial shipments was not recorded as accounts payable, nor 
were property-removal notices prepared until final shipment was made. 

11. The actual construction or acquisition costs were not used. 

12. Machinery and equipment actually installed in a vessel were not charged 
to the cost of the vessel. 

13. Applicable portions of United States Maritime Commission overhead were 
not applied as cost of ship and facility construction. 

14. Depreciation on facilities was not applied as cost of ship construction. 

15. Costs paid direct to contractors were not segregated from those covering 
materials furnished by the United States Maritime Commission. 


While the 1944 report on the War Shipping Administration’s ac¬ 
counting practices indicates that improvements had been made as 
contrasted with 1943, the Comptroller General still found that during 
1944: 

1. The Administration has determined that no collection will be made for the 
use of about 300 ships valued at approximately $600,000,000, transferred to a 
foreign government for temporary war use. 

The audit disclosed that the financial interest of the Government was not ade¬ 
quately protected, due to failure to recover currently, moneys due the United 
States. 

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4. The audit disclosed that the accounting methods employed were not of the 
kind or type to result in the accurate recording of the financial transactions to 
the extent necessary to properly and completely disclose the results of its opera¬ 
tions or financial conditions. 

5. It can be definitely stated that at no time during the fiscal year 1944, could 
the management of the Administration have been furnished current financial 
information from the accounting records. 

6. The audit disclosed that the internal audit was incomplete. 

7. It is believed that past deficiencies in the Administration’s accounting and 
auditing accomplishments have been due to the lack of clearly defined goals of 
auditing, accounting, and reporting objectives. 

8. Improvements in the accounting methods and procedures for 1944 is notice¬ 
able as contrasted with 1943. 

It will be seen that the reports by the Comptroller General do not 
charge that fraud or criminal misappropriation of Government funds 
were found. The reports do charge, however, serious break-downs in 
the accounting systems and accounting operations of the two agencies 
during two of the war years and that, as a result of these break-downs, 
the financial interest of the Government was not adequately protected. 
In this connection, it should be noted that one of the principal func¬ 
tions of accounting is to check on Government expenditures and to 
maintain a record of these expenditures and for what purposes they 
were made. While inadequate and incorrect accounts do not of them¬ 
selves imply fraud, misuse, or misappropriation of Government funds, 
failure to keep accurate and complete accounts make difficult if not 
impossible any determination as to whether such type of loss to the 
Government has occurred. 


\ 









ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 5 


II. Replies and Defenses by the Maritime Commission and the 

War Shipping Administration 


Many of the charges and findings of the Comptroller General were 
admitted by the Maritime Commission and the War Shipping Admin¬ 
istration in their written responses to his reports and in their testi¬ 
mony. Many errors were admitted. Objection was made to some 
allegations made by the Comptroller General, however, while others 
were admitted but an explanation made attempting to justify the 
action which had been taken. During the hearings, arguments were 
made by representatives of the Commission and the Administration 
that, while the accounting systems had broken down other means had 
been taken to safeguard Government funds. It was also contended 
during the hearings that the failure of the accounting systems during 
the war years did not matter because expenditures would have been 
made in any event, irrespective of the condition of the accounts. 
Greatly increased volume of work and inability to obtain sufficient 
qualified personnel were given as the reasons for the break-down of 
the accounting operations. 

In responding to the charges made by the Comptroller General, the 
Maritime Commission made a most startling admission, stating in the 
report forwarded to the committee that; 

The issues raised in the audit report are of such importance that it seems 
necessary to insert three special remarks at this place. They do not concern 
the audit report as such, but they do affect the larger question, namely, the 
statement of Government income and expense. 

First, the Commission would have been faced with the break-down for all 
practical purposes of its bookkeeping system in any event. The implications of 
the audit report are not mentioned; namely, that the Commission had lost book¬ 
keeping record of ship-construction material and that by 1943 there was no 
hope that it could be retrieved by bookkeeping methods. It is conclusive to record 
that $910,494,372.11 of Commission purchases can never be allocated. In addi¬ 
tion there are unrecorded transfers between shipyards too numerous to mention. 
(The foregoing amount is mentioned as $800,000,000 in the Appropriations Com¬ 
mittee report, top of p. 25.) There was, from 1942, no possibility that the cost 
of contracts or of ships would ever be known unless the whole system were 
revised and brought into relation with the flow of money and events. The dis¬ 
order was widely known. 

The whole bookkeeping system of the Commission, in which all of its activities, 
including shipyards, were supposed to be combined, was confused, cumbersome, 
and badly suited to its needs. 

Another important admission made by the Maritime Commission’s 
response was the following: 


The next section of the audit report is headed “Operational practices,” and 
consists of four general comments as follows: 

1. The Maritime Commission is operating without current financial informa¬ 
tion from the accounting records. 

2. The actual accounting and auditing work is not sufficiently coordinated 
with operations. 

3. The property accountability of the Commission is unsatisfactory. 

4. Receiving reports and property removal and transfer notices do not receive 
sufficient attention to protect the interest of the United States. 

Comment: The General Accounting Office is correct on all four counts. We 
accept the general criticisms. 

Mr. Will iam L. Slattery, Director of Finance Construction, of the 
United States Maritime Commission, who had been general auditor 
of construction during 1943 and 1944. testified that while accounting 
control by the Commission had broken down and the Commis¬ 
sion’s property accountability was unsatisfactory, that the ac- 


6 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


tivities of the resident auditors in each yard protected the Government 
against loss. His contention was that the audit made by these resident 
auditors of the vouchers used to authorize the payment of Government 
funds was such as to protect against improper expenditures. It 
should be noted, however, that this contention by Mr. Slattery applied 
only to that part of the Commission’s financial transactions which were 
conducted at the vards and that no check was made by these resident 
auditors on purchases made from Washington, which he stated 
amounted to from 30 to 40 percent of ail the Commission’s expendi¬ 
tures. In the course of his questioning Mr. Slattery also testi¬ 
fied that only test checks were made by the resident auditors and 
that they did not make time and material checks themselves but relied 
on the contractor’s records. 

The most cogent commentary on the protection afforded by the 
resident auditors’ work appears in the Maritime Commission’s report 
on the Comptroller General’s charges in which the Commission stated 
that: 

But it also brings up the necessity to outline tlie Commission’s bookkeeping 
and cost policies. A resident auditor and staff were employed at all but the 
smallest shipyards. They were, generally, of a high type of auditor-accountant 
and many, if not most, had commercial backgrounds. This was especially true 
on the west coast where about half of the ships were built. Their main function, 
apart from expediting reimbursement, since little private capital was employed 
and working capital was furnished by banks with interest reimbursable, was to 
audit the books of the contractors leading to the approval of the public vouchers 
which reimbursed the contractors. It is not too much to say that this audit 
paid for itself over and over again, in the absence of the figures of actual dis¬ 
allowed costs and an estimate of the moral effect of their presence. We know, of 
course, that there was waste and extravagance, Congress knows it, and it teas 
common gossip. The shipyard auditors and their regional chiefs fought the 
higher approvals that sometimes seemed to he given so carelessly hy those in 
charge, and in this fight for the public interest, some auditors lost their official 
heads and others came under a cloud. [Emphasis supplied.] 

Mr. Slattery gave the names of a number of these employees who had 
resigned under pressure or who had been separated under a cloud or 
who had resigned in dissatisfaction adding that “They quit in disgust.” 

In view of this pressure from above and the carelessly given ap¬ 
provals admitted by the Commission, it appears that the resident 
auditor system could not have adequately protected the Government’s 
interest. In addition, the fact that it in no wav covered from 30 to 40 
percent of the Commission’s expenditures requires the committee to 
conclude that there was no adequate substitute for a proper accounting 
system. As the Maritime Commission has admitted that its accounting 
system broke down, and as the War Shipping Administration has 
admitted to many errors in its accounting operations, the committee 
must conclude that all of the protection against improper expenditures 
normally given by an adequate accounting system did not exist during 
the vast wartime program of these agencies and that no proper account¬ 
ing control was maintained over expenditures of billions of dollars. 
While no fraud or misappropriation was found through- the Comp¬ 
troller General’s examination of the books, the fact that the Com¬ 
mission has admitted that hundreds of millions of dollars cannot 
be allocated and that millions of dollars believed owing to the Gov¬ 
ernment for years is only now being collected, makes it appear that 
the Government may have suffered serious financial damage, although 
the condition of the accounting records has made detection of this 
fact most difficult. 




ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 7 


III. Findings by the Committee 

Eacli of the allegations made by the Comptroller General and each 
of the responses thereto made by the Maritime Commission and the 
War Shipping Administration have been closely examined by the 
committee’s accountans. In almost every case, as will be seen from 
appendix A, they have supported and upheld the validity of the Comp¬ 
troller General’s contentions. In addition, evidence received at the 
hearings before your committee requires that certain additional find¬ 
ings and comments here be made. 

One of the most distressing features of your committee’s findings 
regarding the chaotic condition of the accounting systems of the 
Maritime Commission and the War Shipping Administration is that 
knowledge of the inadequacies of these accounts were long known 
and were still uncorrected. As early as November 1937, in response 
to a request from the Maritime Commission, the Comptroller General 
recommended the installation of an accounting system which he pre¬ 
scribed. Unfortunately, the Comptroller General’s suggestion was 
disregarded. In May 1943, representatives of the General Account¬ 
ing Office were requested by Admiral Land and Mr. Lewis W. Douglas, 
Deputy Administrator of the War Shipping Administration, to make 
an audit of the Maritime Commission’s balance sheet. Because they 
were unable to find the basis for $54,000,000 of adjustments made by 
the Maritime Commission, these representatives reported that this 
could not be done. Late in 1943, Mr. Douglas brought in Mr. Eric L. 
Kohler, a prominent certified public accountant and accounting au¬ 
thority, to review the War Shipping Administration’s accounting sys¬ 
tem and Mr. Kohler submitted his analysis of the accounting needs of 
the Administration. Soon after that, Mr. J. F. Stone was retained as 
special assistant to the Administrator to Avork on the War Shipping 
Administration’s accounts and he made additional specific and definite 
recommendations for required improvements and changes. The 
recommendations by Mr. Kohler and Mr. Stone brought forward 
many of the inadequacies later revealed by the General Accounting 
Office’s audit. On August 30, 1944, Mr. Stone complained bitterly 
to Admiral Land that he had learned that no action was to be taken 
on his recommendations. In this letter Mr. Stone made the following 
comments: 

This trial balance reveals that the accounts were in a thoroughly confused 
condition and that no meaningful financial statements covering any phase of 
the Administration’s activities could be made from the existing records. This 
deplorable situation was not a necessary effect of the war, nor of a shortage 
in numbers of personnel. The facts are that known and ascertainable domestic 
transactions were not recorded, accounts receivable running into the millions 
of dollars were not recorded or billed, accounts payable and commitment records 
were nonexistent, the amount of simple administrative expenses had not been 
determined. 

* ****** 

As may be gathered, I ha\’e been able to do little to solve the Administration s 
accounting problems. My purpose in undertaking this work was to perform a 
badly needed service. I did not seek the assignment, nor would I have accepted 
the responsibility had I known of the circumstances which prevented any 
measure of accomplishment. 

Mr. Slattery, the present Director of Finance, Construction, of the 
Maritime Commission, testified that the lack of adequate accounting 
control Avas known by 1942 and 1943. Despite this and despite 



8 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


the General Accounting Office, Kohler, and Stone recommendations, 
no efforts appear to have been made to rectify this unfortunate situa¬ 
tion. Until the revelations made by the General Accounting Office 
were publicized, it appears that little concrete steps were taken to 
establish a more adequate system of accounts. This failure by the 
Commission and the War Shipping Administration to take adequate 
measures during the following years to rectify a known condition is 
not understandable. 

The extent of the inadequacies and inaccuracies of the bookkeeping- 
records of the Maritime Commission and the War Shipping Admin¬ 
istration is shown by the volume of adjustments which were re¬ 
quired to bring the books into accord with actual fact. The Commis¬ 
sion’s preparation of its financial statement as of June 30, 1943, was 
in three steps. First, the balance was taken from the books totaling 
$8,058,391,378.09. Changes and corrections of the foregoing 
figures were then made in the amount of $1,857,877,238.14. 
Further changes and corrections totaling $2,100,059,819.93 were 
then required to close the gap between recorded fact and actual fact. 
In preparing its financial statement for the same period the War 
Shipping Administration took balances from the books totaling 
$2,175,177,686.25 (including $705,668,909.62 of cash on deposit 
with the Treasury which was not adjusted). Changes and corrections 
in the amount of $326,413,253.96 were then made. To close the 
gap between recorded fact and actual fact, it was then necessary to 
make further changes and corrections totaling $3,722,813,678.57. 
In closing its books for the fiscal year ending June 30, 1944, the Mari¬ 
time Commission’s book balances of more than $10,800,000,000 re¬ 
quired corrections and changes of more than $5,500,000,000 before a 
presentation of actual facts could be made in the issued financial state¬ 
ment. The books of the War Shipping Administration for the 
fiscal year ending June 30, 1944, were not closed until February 1945 
indicating an 8-month lag between actual fact and recorded fact. 
It should be noted, moreover, that the General Accounting Office 
stated that unusual difficulties were encountered in making the numer¬ 
ous year end adjustments and locating the many inaccuracies in both 
the books and financial statements of the War Shipping Administra¬ 
tion for that year. 

In addition to the billions of dollars of adjustments made by the 
Maritime Commission it should be further noted that the General 
Accounting Office was required to make additional adjustments of 
their own totaling several hundreds of millions of dollars to show the 
true financial condition of these agencies. 

The great number of adjustments which were required both to cor¬ 
rect the books and to bring recorded fact into agreement with actual 
fact clearly discloses the incompleteness of the accounting records for 
current operational management purposes. Some adjustments would 
normally be required and expected in closing the books of agencies 
carrying on as large scale and widespread activities as the Maritime 
Commission and the War Shipping Administration. But the huge 
amounts here involved, and the high percentage of the adjustments in 
proportion to the total accounts of the agencies, clearly indicates 
something decidedly wrong with the accounting systems and account¬ 
ing operations of these agencies. 



ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 9 


Failure to keep accurate and complete accounts may result in serious 
monetary loss to the Government even in the absence of actual fraud 
or misappropriation. In the absence of proper accounting records, 
duplicate payments by the Government could and did occur. 
Erroneous payments could be and were made. Amounts owed to 
the Government might not be and were not collected promptly, if at 
all. Duplicate and excessive purchases might result from failure 
to keep accurate records. In the absence of adequate inventory 
and property controls, property losses might occur, and Govern¬ 
ment assets could be transferred to private interests. Most im¬ 
portant is that the absence of adequate records make detection of mis¬ 
takes, inefficiency, or even fraud difficult if not impossible. More¬ 
over, in the absence of accurate and complete accounting records, man¬ 
agement decisions cannot be made on a sound factual basis. 

Failure of the Maritime Commission and the War Shipping Admin¬ 
istration to keep adequate and complete records opened the door to all 
of the above possibilities, so that the possibility of Government suffer¬ 
ing loss in the course of its unprecedented huge shipbuilding and ship- 
operation program was greatly increased by the poor accounting rec¬ 
ords of these agencies. It should further be noted that the very 
inadequacy of the records made it difficult, if not impossible, to deter¬ 
mine whether these losses had actually occurred. As stated by Mr. 
Fisher, the assistant general counsel of the General Accounting Office, 
in his testimony before this committee: 

* ****** 

1. Are there sufficient records available to make a finding that all the money 
that has been disbursed has been properly disbursed? 

2. Are you satisfied that the records that you have checked are in such shape 
that you can affirmatively say that there was no fraud? 

3. Were the records sufficient that the General Accounting Office made a satis¬ 
factory audit? 

It is the position of the General Accounting Office that the answer to each of 
those questions is “No,” and the substance of the entire testimony was to that 
effect. 

Even in the absence of any discovery of any actual fraud or mis¬ 
appropriation, failure to keep accurate and current accounts and com¬ 
plete accounts did result in serious monetary losses to the Government. 
Several examples will be disclosed more fully in the following para¬ 
graphs. From this it will be seen that failure to process records 
promptly, failure to maintain adequate accounting controls, and 
failure to allocate costs properly as between the Government and 
private individuals resulted in substantial delay in recovery of funds 
owed to the Government and probable loss of large amounts so owed. 

A primary example of the results of the break-down of the account¬ 
ing systems of these two agencies and their effect upon moneys owed 
the Government is shown through their failure to collect large 
amounts of money due and owing from private persons for many 
years. The General Accounting Office’s report set forth seven specific 
items of moneys owing to the Government which the Maritime Com¬ 
mission and the War Shipping Administration had not collected, 
totaling $23,900,000: Mr. Slattery, of the Maritime Commission, 

94917—47-2 



10 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


agreed with that figure. 3 Some of these amounts due the Govern¬ 
ment go back as far as 1942. 

Only recently and apparently only since the Comptroller General’s 
reports, have efforts been made by the Maritime Commission to collect 
these amounts. Within the few weeks just preceding the hearing, 
over $500,000 had been collected by a committee appointed by the 
Commission for this purpose. While efforts are now being made 
by this committee to recover amounts owing the Government, it 
should be noted that many of the settlements are being made on the 
basis of negotiation rather than on current records, it is ques¬ 
tionable whether the Government’s interests can be protected through 
such negotiation and in the absence of actual accounting records of 
the amounts due. How much of the $23,900,000 found by the General 
Accounting Office to be due wdll be recovered cannot be predicted. 
Nor can it be estimated what other amounts are owing but not shown 
because of the inadequacy of the records and the fact that thousands 
of the records have not been processed by the Commission. 

The practice of not promptly collecting amounts due to the Govern¬ 
ment was done by the War Shipping Administration as well as by 
the Maritime Commission. During war years, repairs on vessels char¬ 
tered by the War Shipping Administration were made by that agency. 
Under the charter agreements, however, a large number of these re¬ 
pairs were required to be made by the owner of the ship, so that when 
the War Shipping Administration made these repairs they were en¬ 
titled to reimbursement for them from the vessels’ owners. Such 
repairs chargeable to private accounts had been made since May 
19, 1942. Yet it was not until March 16, 1945, that a meeting was 
held by representatives of the War Shipping Administration “in 
order to establish procedures for the identification, valuation, and 
billing of such amounts.” Mr. Joseph Quinn, the comptroller of 
the War Shipping Administration, was asked at the hearings to 
furnish the committee an estimate of the amount of repair work 
done for private accounts since 1942, the amounts collected from the 
private operators for this repair work, and the estimated amounts 
uncollected and due to the Government at the present time. At 
the time the transcript was sent to the printer, 49 days after this 
request was made, this information had not been submitted. No 
figures are, therefore, available as to the approximate amount 
due the Government for repairs chargeable to private account. In 
view of the large number of ships chartered from private operators 
and the hundreds of millions of dollars expended by the War Shipping- 
Administration for their repair during the war years, it can safely be 
said, however, that the amount owing must be huge. 

Representatives of the General Accounting Office informed the 
committee that nothing had been done to recover moneys due for these 
repairs and that nothing had been done even after the March 
16, 1945, War Shipping Administration meeting referred to above. 
Not only has the dollar amount due the Government by these private 
operators not yet been recorded by the War Shipping Administration, 
but that agency has not even yet determined which repairs were for 


3 In the examination of Mr. Slattery, counsel for the committee used through inadvertence 
the figure of $21,000,000 rather than $23,900,000 stated by the G. A. O. Mr. Slattery 
agreed with this $21,000,000 figure, but it appears clear from the Questioning that reference 
was had to the amount stated by the G. A. O. 



ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 11 


private- accounts and which were chargeable to the Government. 
In view of this delay, your committee fears that substantial amounts 
owing to the Government will probably never be recovered. It is im¬ 
perative, however, that steps be initiated immediately to determine 
what amounts are owing and to collect whatever amounts can be 
collected. Your committee intends to follow this matter during the 
coming Congress and to check closely upon the efforts made to accom¬ 
plish this purpose. 

Your committee also found that the Maritime Commission and the 
W ar Shipping Administration lost accounting control of hundreds of 
millions of dollars of Government-owned property and inventory. As 
admitted by the Maritime Commission in its reply to the Comptroller 
General's report, the Commission had lost all bookkeeping records of 
ship-construction material estimated by Mr. Slattery at 30 percent of a 
twenty-one-billion-dollar program. An example of this break¬ 
down in control of Government-owned property and the loss of all 
inventory control is shown from the fact that for several years the 
Commission had no record of its own warehouse at Emeryville, Calif., 
which contained $2,003,186.22 of inventory actually on hand. Un¬ 
til the time that the General Accounting Office called this to the 
Maritime Commission’s attention, the latter’s accounting department 
did not know of the existence of the warehouse or the materials in it. 
In response to the Comptroller General’s allegation of “Failure 
to record $2,063,180.22 of inventory actually on hand in the Com¬ 
mission’s own warehouse at Emeryville, Calif.,*’ the Commission made 
its official reply as follows: 


Comment: This is a prime example of information not available and the dis¬ 
order surrounding the construction of ships without regard to cost. It was not 
until fiscal 1944 that this warehouse was known to be a Commission warehouse. 
Prior to that time it was a storage yard for construction material included in 
the cost of ship construction by contractors at various west-coast shipyards and 
so recorded on their books. When, in fiscal 1944, this property became an official 
Commission warehouse, an inventory of these materials was taken and subse¬ 
quently recorded on the books in Washington. There is room for doubt that 
the inventory as recorded was relieved in relative cost at the various shipyards 
involved and it may be duplication, not mentioned in the audit report. 


On July 1, 1945, all control over inventory in domestic warehouses 
maintained by the War Shipping Administration was transferred to 
the Maritime Commission. Prior to that time, however, the 
“control’* maintained by the War Shipping Administration was the 
same as that maintained by the Commission. In a memorandum 
prepared by Mr. Quinn addressed to the Maritime Commission on 
July 20, 1945, the following statement was made: 


In preparing to assume responsibility for the operation of the warehouses which 
were transferred from the Procurement Division by the Administrative Order No. 
79, Supplement 4, this Division finds that the present records do not reflect the 
materials actually in warehouses, particularly in the larger and more active 
warehouses. 


In addition to this lack of proper control over inventory in their 
own warehouse, no adequate records were kept of transfers of Gov¬ 
ernment-owned materials between shipyards. No regular in-and- 
out records of Government-owned materials were kept. In the ab¬ 
sence of removal notices and the constant diversion of materials 
between shipyards it cannot now be told where the material was 
actually used or to where it was diverted. Moreover, payments 


12 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


for material purchased were made on bills of lading rather than on 
the basis of actual receiving reports. 

An estimated 60,000 property-removal notices have not been proc¬ 
essed by the Commission. The General Accounting Office 
has estimated that processing these 60,000 property-removal notices 
will show that-there is approximately $12,000,000 owing to the Gov¬ 
ernment. A group has - recently been set up in the Maritime 
Commission to examine these notices and to recover moneys due to 
the United States. Unfortunately, these recoveries, too, will have to 
be on the basis of negotiated settlements because of the failure to 
account for these amounts currently as they came due. Your 
committee intends to check closely on the action now to be taken by 
the Commission to process these papers and to recover the amounts 
owing to the Government. 

IY. Conclusions 

From the evjdence received and the findings which we have made, 
your committee submits the following conclusions: 

1. The accounting practices and operations of the Maritime Com¬ 
mission and the War Shipping Administration during the years 1943 
and 1944 were not in accord with generally approved sound account¬ 
ing procedures. 

2. At no time during 1943 or 1944 could the accounting systems of 
these two agencies have been depended upon to give accurate informa¬ 
tion to the operating personnel of these agencies or to fulfill the pur¬ 
poses and objectAes of an adequate accounting system. 

3. The accounting practices of the Maritime Commission and the 
War Shipping Administration could not adequately have protected 
the Government and the taxpayer against loss from items such as 
duplication of payment, overpayments, overpurchases, nonreceipt of 
moneys due to the Government, or the control of Government-owned 
property and inventories. 

4. The operations of the accounting system of these two agencies 
precluded the Government from allocating the cost of materials to 
ships in an amount approaching $1,000,000,000. 

5. Failures of the accounting procedures of the Maritime Commis¬ 
sion and the War Shipping Administration opened the door to pos¬ 
sibilities of loss, waste, overpayment, and possible fraud (although 
no actual fraud was discovered) ; and the inadequacies of their ac¬ 
counting practices made it difficult, if not impossible, to check upon 
whether such losses, waste, or fraud actually occurred. 

6. The explanation given for the failures of the accounting systems 
of the two agencies is that adequate manpower was not available 
and that the rapid expansion of the agencies’ business prevented them 
from ever bringing their accounting records into accord with actual 
facts. While this excuse may be partially applicable, our study leads 
us to the inevitable conclusion that although the weaknesses in the 
accounting system were known early in the war, little effort was made 
to correct them and inadequate attention was given to the purposes 
and the functions of the accounting system. So far as we are able 
to discover, those at the head of the two agencies made no substan¬ 
tial effort to install and maintain an accounting system adequate to 


ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 13 


the expanded tasks of these two agencies. As a result of this failure, 
the Government is in the unfortunate position of having little prac¬ 
tical opportunity of determining the propriety of expenditures 
amounting to billions of dollars. The action of heads of these agen¬ 
cies in failing to require the installation of an adequate accounting 
system is not understandable. 

7. We concur generally in the statements made by the Comptroller 
General with respect to accounting procedures and practices as set 
forth in the 1943 and 1944 audit reports. With the exception of the 
$1,200,000 adjustment in connection with steamship President Madi¬ 
son , the Comptroller General’s correction of the major errors of omis¬ 
sion and commission as listed in the 1943 audit reports were substan¬ 
tially correct. The statements of the Comptroller General with respect 
to operational practices and recommendations of the Comptroller 
General appear well founded. In view of the inadequacy of the 
accounting systems of the subject agencies, and in view of the large 
number of errors found in the course of the audit, in our opinion, the 
Comptroller General’s certification at the conclusion of the audit 
reports should have been omitted. (“Subject to the foregoing com¬ 
ments and qualifications, the attached statements fairly present the 
financial position as at June 30, 1943, and the operating results for 
the fiscal year ended that date.”) 

8. The accounting records reviewed contained glaring errors, many 
resulting from the method of record keeping which appeared to be 
inadequate, cumbersome, and complicated. There was also evident a 
lack of coordination between the operating divisions and the Budget 
and Accounts Section, as well as a lack of coordination accounting- 
wise between the Maritime Commission and the War Shipping 
Administration. 

9. When the Maritime Commission found itself confronted with a 
volume of wartime work on its hands no effective steps were taken to 
“streamline” the accounting methods and procedures for the purpose 
of eliminating useless records and simplifying the record keeping with 
respect to those records which were essential. This general criticism 
also applies to the War Shipping Administration which 4 being a “war¬ 
time child” of the Maritime Commission, should have established 
methods of accounting and reporting which could have been reason¬ 
ably maintained under wartime conditions. 

V. Recommendations 

Your committee is of the opinion that it is important for a congres¬ 
sional investigating committee not only to discover and report upon 
improper and inadequate operations of executive agencies under its 
jurisdiction but also to recommend measures to be taken to rectify 
the conditions found and to insure against a future repetition of these 
conditions. Accordingly, as a result of its hearings and findings, 
vour committee makes the following recommendations: 

1. Immediate steps should be taken by the Maritime Commission to 
collect all moneys owing to the Government. To accomplish this all 
property removal notices should be immediately processed, all expend¬ 
itures made for ship repairs should be analyzed to determine the 
amounts chargeable to private accounts, and the amounts due to the 


14 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


Government from private parties should immediately be billed and 
collected. 

2. One or more members of the Maritime Commission should be 
given primary responsibility for the maintenance of adequate account¬ 
ing records, and that member should be required to report to the full 
Commission monthly as to all steps being taken to insure that accurate 
and current accounts are being maintained. To insure that adequate 
personnel is available the Commission should retain several certified 
public accountants who have had a substantial background in account¬ 
ing practice who will be directly responsible to the Commissioner in 
charge of accounting and who will install, maintain, and supervise 
an adequate accounting system. 

3. The recommendations of the Comptroller General set forth in 
his letter to the Acting Chairman of the United States Marit ime Com¬ 
mission, dated March 1,1946, printed on pages 452 and 453 of the com¬ 
mittee’s printed hearings, and the further recommendations of the 
General Accounting Office which appear on page 393 of that tran¬ 
script, should be immediately adopted. In addition, such further 
recommendations as the Comptroller General may make for the im¬ 
provement of the accounting systems of the two agencies should be 
given full and thorough consideration. 

4. The committee consisting of representatives of the Maritime 
Commission and the General Accounting Office appointed to determine 
measures necessary for the institution and maintenance of an effective 
accounting system for the Commission, established at the urging of 
the Committee on the Merchant Marine and Fisheries, should be made a 
permanent body meeting at least once monthly to insure that a close 
liaison between the two agencies is maintained. A monthly report 
should be made to this committee of the current status of the Maritime 
Commission’s books, and a similar report containing that committee’s 
comments forwarded to the Comptroller General. 

5. Closer coordination between the Maritime Commission's oper¬ 
ating divisions and its Accounting Division should be established, 
with responsibility placed upon the operating divisions to report 
promptly all transactions which must be reflected in the accounts. Ill 
addition, current and accurate accounting reports should be submitted 
to the operating divisions at regular intervals. 

6. All future records of the Maritime Commission should be kept 
on a current basis. At the first sign of any break-down or delay, repre¬ 
sentatives of the General Accounting Office should be immediately 
called in for consultation and assistance. In this connection, your 
committee recommends that the General Accounting Office establish 
a special section of trained certified public accountants to be available 
to the Maritime Commission and other Government agencies for 
assistance whenever their services are necessary and that they be au¬ 
thorized, whether requested by that agency or not, to make periodic 
examinations of their accounting books and records rather than be 
required to wait until the time for annual audit. It is your committee’s 
hope that by this method current checks can be made on the accounting 
systems of Government agencies and that break-downs in accounts can 
be prevented by the General Accounting Office rather than reported 
upon after they have occurred. 

In view of the many accounting discrepancies which have already 
been discovered and disclosed, the Merchant Marine Committee of the 


ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 15 

Eightieth Congress should give immediate attention toward institut¬ 
ing a wider and deeper investigation than has so far been made by 
either the General Accounting Office or by this committee, in order to 
ascertain whether any fraud, misappropriation, waste, or other loss to 
the Government resulted from the lax accounting practices. 

7. Legislation should be enacted authorizing the General Accounting 
Office to audit and check upon the property accounts of Government 
agencies as well as upon their financial transactions. Your committee 
has been informed that the General Accounting Office at this time has 
no authority to check on property accounts and that accountability for 
property once purchased by a Government agency is solely in the 
head of that agency. Your committee believes that check should be 
made by the General Accounting Office over Government property in 
the same manner as is made over expenditures by the various agencies 
to insure against misuse or waste. 

8. Legislation should be immediately introduced and enacted requir¬ 
ing Government officials and the heads of Government agencies to keep 
accurate books and records. Your committee has been informed that 
there is presently no requirement that Government agencies keep ac¬ 
curate and complete accounts and that there is now no way in which 
Government officials can be prosecuted for failure to do so. This 
legislation should, moreover, authorize the General Accounting Office 
to establish a standard system for keeping Government accounts, sub¬ 
ject to adjustments to meet the needs of the individual agencies, and the 
Government agencies required to comply with the systems so ordered. 
Your committee requests the Comptroller General to prepare drafts of 
legislation of this type for submission during the Eightieth Congress. 






, 

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APPENDIX A 


PRELIMINARY REPORT ON THE ACCOUNTING PRACTICES OF 
THE MARITIME COMMISSION AND THE WAR SHIPPING ADMIN¬ 
ISTRATION DURING THE FISCAL YEARS 1943 AND 1944 

September 25, 1946. 

Hon. S. O. Bland, 

Chairman, Merchant Marine and Fisheries 
Investigating Committee, 

House of Representatives, Washington 25 , D. C. 

Dear Judge Bland: In accordance with House Resolution 38, 
Seventy-ninth Congress, and at your request as made to us by the 
general counsel of the committee, we have reviewed on a selective 
basis certain aspects of the accounting procedures and practices of 
the War Shipping Administration and the Maritime Commission 
particularly with respect to the fiscal year ended June 30, 1943, and 
the financial statements of that year which gave rise to the unfavor¬ 
able audit report submitted by the Comptroller General. 

A report setting forth our findings to date is submitted herewith. 
Respectfully submitted. 

Sivert M. Wedeberg. 

C. Wilbur Cissel. 


Preliminary Report on Comptroller General’s Audit Reports 
for Fiscal Years 1943 and 1944 and the Replies Thereto 
by the Maritime Commission and the War Shipping 
Administration 

1. In accordance with House Resolution 38, Seventy-ninth Con¬ 
gress, and at the request of the chairman of the Merchant Marine and 
Fisheries Investigating Committee, we have reviewed on a selective 
basis certain aspects of the accounting procedure and practices of the 
War Shipping Administration and the Maritime Commission. Our 
instructions from the chairman were to make as thorough an investiga¬ 
tion as possible, to bring all facts into the open, to determine the 
relative merits of the charges of the General Accounting Office and 
the defenses of the Maritime Commission and the War Shipping 
Administration, and to a let the chips and the heads fall where they 
may.” 

2. Because of limitations on the time available (2 months) and 
limitations on available personnel, a thorough investigation of each 
individual aspect of the accounting systems of the two agencies was 
impossible. We have, however, made a survey of the accounting 
practices of these agencies during the years 1943 and 1944 and a 


94917—47 


3 




18 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 

sufficiently detailed analysis of their workings to support our findings 
and conclusions. Frequent reference was made to the Comptroller 
General's audit working papers in the course of the survey. Our 
tentative findings may be summarized as follows: 

(а) The accounting practices of the Maritime Commission and 
the War Shipping Administration during the years 1943 and 1944 
were not in accord with generally approved sound accounting 
procedures. 

(б) At no time during 1943 or 1944 could the accounting 
systems of these two agencies be depended upon to give accurate 
information to the operating personnel of these agencies or to 
fulfill the purposes and objectives of an adequate accounting 
system. 

(c) The accounting practices of the Maritime Commission and 
the War Shipping Administration could not adequately have 
protected the Government and the taxpayer against loss from 
items such as duplication of payment, overpayments, over¬ 
purchases, nonreceipt of moneys due to the Government, or the 
control of Government-owned property and inventories. 

(d) The operations of the accounting system of these two 
agencies precluded the Government from allocating the cost of 
materials to ships in an amount approaching $1,000,000,000. 

(e) Failures of the accounting procedures of the Maritime Com¬ 
mission and the War Shipping Administration opened the door 
to possibilities of loss, waste, overpayment and possible fraud 
(although no actual fraud was discovered); and the inadequacies 
of their accounting practices made it difficult, if not impossible, 
to check upon whether such losses, waste, or fraud actually 
occurred. 

3. The explanation given for the failures of the accounting systems 
of the two agencies is that adequate manpower was not available and 
that the rapid expansion of the agencies’ business prevented them from 
ever bringing their accounting records into accord with actual facts. 
While this excuse may be partially applicable, our study leads us to 
the inevitable conclusion that although the weaknesses in the account¬ 
ing system were known early in the wai, little effort was made to 
correct them and inadequate attention was given to the purposes 
and the functions of the accounting system. So far as we are able to 
discover, those at the head of the two agencies made no substantial 
effort to install and maintain an accounting system adequate to the 
expanded tasks of these two agencies. As a result of this failure, the 
Government is in the unfortunate position of having little practical 
opportunity of determining the propriety of expenditures amounting 
to billions of dollars. The action of heads of these agencies in failing 
to require the installation of an adequate accounting system is not 
understandable. 

4. Based upon our review to date, we have arrived at the following 
tentative conclusions: 

(а) We concur generally in the statements made by the Comp¬ 
troller General with respect to accounting procedures and prac¬ 
tices as set forth in the 1943 audit reports. 

(б) With the exception of the $1,200,000 adjustment in con¬ 
nection with steamship President Madison , the Comptroller 
General’s correction of the major errors of omission and commis¬ 
sion as listed in the 1943 audit reports were substantially correct. 


ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 19 

(c) The statements of the Comptroller General with respect to 
operational practices and recommendations of the Comptroller 
General appear well founded. 

(d) In view of the inadequacy of the accounting systems of the 
subject agencies, and in view of the large number of errors found 
in the course of the audit, in our opinion the Comptroller General's 
certifications at the conclusion of the audit reports should have 
been omitted. (“Subject to the foregoing comments and quali¬ 
fications, the attached statements fairly present the financial 
position as at June 30, 1943, and the operating results for the 
fiscal year ended that date.”) 

(e) The accounting records reviewed contained glaring errors, 
many resulting from the method of record keeping which appeared 
to be inadequate, cumbersome, and complicated. There was also 
evident a lack of coordination between the operating divisions 
and the Budget and Accounts Section, as well as a lack of coordi¬ 
nation accountingwise between the Maritime Commission and 
the War Shipping Administration. 

(/) When the Maritime Commission found itself confronted 
with a volume of wartime work on its hands, no effective steps 
were taken to “streamline” the accounting methods and pro¬ 
cedures for the purpose of eliminating useless records and sim¬ 
plifying the record keeping with respect to those records which 
were essential. This general criticism also applies to the War 
Shipping Administration which, being a “wartime child” of the 
Maritime Commission, should have established methods of 
accounting and reporting which could have been reasonably 
maintained under wartime conditions. 

5. The major errors of omission and commission, as set forth in the 
audit reports for the year ended June 30, 1943, are discussed in detail 
later in the report. With the possible exception of the opinions set 
forth in the foregoing subparagraph (/), it is considered that the 
detailed discussion on the major errors will substantiate the tentative 
general conclusions stated above. However, it seems appropriate at 
this point to make a few observations concerning items which might 
be overlooked in the details appearing later in the report. Further¬ 
more, it is believed that certain of these items support the opinion 
contained in subparagraph (/). 

ACCOUNTS PAYABLE (WITH RESPECT TO COMPLETED VESSELS) 

6. The accounting treatment of some items was so farfetched that 
it was almost unimaginable. Although, significantly, the Maritime 
Commission did not prepare a detailed schedule of accounts payable 
to support the figure shown on the June 30, 1943, balance sheet, an 
examination of the procedure followed in arriving at the figure used 
revealed that the total accounts payable was decreased by the excess 
of recorded cost of ship construction over estimated cost of such con¬ 
struction. For example, in one instance alone the total accounts 
payable of the Maritime Commission was decreased by an amount in 
excess of $11,000,000 because of the fact that the actual cost as 
recorded on the books exceeded the cost as estimated by the Budget 
and Accounts Section of the Finance Division. The details are as 
follows: Cost-plus contract MCc-2474 was entered into under date of 


20 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 

March 12, 1942, with W. A. Bechtel Co. (later named Marinship 
Corp.), Sausalito, Calif., for 15 EC2 Liberty ships. With respect 
to 13 of these ships which had been completed as of June 30, 1943, the 
adjusted contract price was $29,466,666.59. The Technical Division 
of the Maritime Commission estimated costs at $24,700,000. The 
Budget and Accounts Section of the Finance Division (Maritime 
Commission) estimated the cost at $26,000,000 (or $2,000,000 per 
vessel). 

The costs actually recorded on the books as of June 30, 1943, on the 
13 completed vessels amounted to $37,404,012.11. For balance sheet 
purposes the Maritime Commission subtracted the estimated cost of 
$26,000,000 from the recorded cost of $37,404,012.11, and decreased 
the accounts payable by the $11,404,012.11 difference. The above 
illustration covers only the completed vessels on one contract, and 
therefore the total decrease in accounts payable resulting from this 
apparent perversion of accounting principles is substantially in excess 
of the $11,000,000 item cited. 

BILLS OF LADING AS A BASIS FOR PAYMENT OF INVOICES 

7. Material, in many cases, was purchased by the Commission, 
delivered to the various shipyards, receipted for by shipyard em¬ 
ployees, and paid for by the Commission. Receiving reports were 
received and filed by the Commission but no comparison was made 
of the items appearing on the vendors’ invoices with the items appear¬ 
ing on the receiving reports. Instead of using the receiving report 
as a basis for the payment of the public voucher, it was the practice 
of the Maritime Commission to use a copy (not the original) of the 
bill of lading for this purpose. So far as can be determined the various 
copies of the bill of lading were never matched or compared. Although 
the Maritime Commission maintained a bill of lading file against 
which to check invoices, it is understood that, if the proper copy of 
the bill of lading could not be located, another copy of the bill of lading 
would be used as the basis for approving the invoice. 

8. These practices created a situation conducive to the making of 
duplicate payments and overpayments. Duplicate payments might 
easily result when a contractor, not having received payment on his 
first invoice, transmitted a second invoice for the same material. 
Both the original and the duplicate invoice might have been paid 
in full, particularly since, in instances where the proper copy of the 
bill of lading to be checked against invoices could not be located, it 
is understood that some other copy of the bill of lading was used to 
effect payment. (If the contractors had known the system used in 
the payment of invoices without the use of receiving reports and 
without matching the bill of lading copy with the original bill of 
lading, and had they also known which copies were used for purposes 
of matching with the invoice, it would have been relatively simple to 
render a fictitious invoice based on a copy of the bill of lading which 
did not agree with the original.) 

9. Overpayments may have resulted in connection with the pur¬ 
chase of steel plates in the following maimer. 'When there were short¬ 
ages in the number of plates, over-short and damaged reports were 
prepared, but it appears that some producers merely issued a cor¬ 
rected invoice for the number of plates and did not change the original 


ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 21 


total weights shown on either the bill of lading or the invoice. Since 
the price was based on total weight, rather than on number of plates, 
the invoice would be paid at the original amount. Similarly, no 
change apparently was made in the amount paid for freight with 
respect to such steel plates. Since the Comptroller General did not 
have authority on some types of contracts, such as contracts that 
did not involve cost determination, to visit the steel mills for the 
purpose of checking on the basis of billing for steel, it is possible 
that the committee might wish to investigate this angle further. 
The practices in weighing the steel should not be overlooked. 

UNRECONCILED CASH BALANCES 

10. A spot check of appropriation symbol accounts for cash as 
maintained by the War Shipping Administration indicates that a 
large number of these accounts were not reconciled as of June 30, 
1943, which fact casts considerable doubt upon the validity of the 
figures shown on the balance sheet under the asset caption of-“ General 
funds.” We have been informed that approximately 100 of such 
appropriation symbol accounts are maintained by the War Shipping 
Administration. An examination of the audit working papers pre¬ 
pared by the General Accounting Office in connection with the June 
30, 1943, audit indicated that 22 of these accounts bad not been 
reconciled correctly as of the balance sheet date. A representative 
of the War Shipping Administration was contacted for the purpose 
of determining whether or not these 22 cash accounts have now been 
reconciled and he stated that as of the present date (September 9, 
1946) 21 have not yet been reconciled. (See Exhibit 1.) 

11. It is noted that in its comments relating to the general funds 
shown in the June 30, 1943, statement of assets and liabilities, the 
War Sl ipping Administration made the following statement: 

“The balances of all appropriations and working funds have 
been reconciled with the balances of the United States Treasury. 
The symbols, titles, and balances are shown in schedule A-1-1-.” 

The foregoing paragraph 10 indicates that this statement was a 
misstatement of fact. 

12. The condition of the appropriation symbol accounts maintained 
by the Maritime Commission has not been reviewed. 

ACCOUNTS RECEIVABLE 

13. The methods followed by the Maritime Commission and the 
War Shipping Administration in handling accounts receivable seemed 
to be cumbersome and complicated and did not appear to protect 
adequately the interests of the Government. (For example, see dis¬ 
cussion of errors No. 8 and 19 on the 1943 War Shipping Administra¬ 
tion audit report, and the discussion of error No. 7 on the 1943 Mari¬ 
time Commission audit report.) In many instances the cash was 
actually collected and the receivable credited before the receivable 
had been recorded on the books. This resulted in large credit bal¬ 
ances appearing in accounts receivable in the books as of the close of 
the 1943 fiscal year (in the case of the Maritime Commission, June 
30, 1943—$41,931,031.16), which balances were analyzed and ad- 


22 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


justed before arriving at the final debit balances which were-shown as 
assets on the balance sheets. 

14. That this procedure was detrimental to the interests of the 
Government is indicated by the large number of errors apparent in 
the June 30, 1945, figure as shown by the Maritime Commission. 
Upon hearing that the General Accounting Office, currently conduct¬ 
ing the audit for the year ended June 30, 1945, was attempting to 
confirm the accounts receivable shown on the Maritime Commission 
books with the figures shown on the books of the various debtors 
involved, we contacted the General Accounting Office representative 
for information as to the results of such confirmation. Although it 
should be understood that many replies have not vet been received 
(as of September 9, 1946), the results to date may be summarized as 
follows: 



Num¬ 
ber of 
debtors 

Total amounts receivable 

Per USMC 
statemer ts 

Per debtors’ 
books 

Accounts receivable, all programs, per USMC published state¬ 
ment, June 30, 1945.... _.__ 


$150, 755, 752. 59 


Letters of confirmation mailed to Sept. 9,1946, where account bai* 
ance is over $1,000_. _ _ ... ... ... ... 

558 


50, 704,104. 72 

Confirmed as correct___ . __. 

$1, 276, 726. 31 
1,973. 23 

32,331.09 

420,104.88 

19 

1 

4 

32 

34 

9 

109 

1,276, 726.31 

1, 973. 23 

20,834. 75 

668,883.32 
8, 861, 802. 59 

659, 217. 65 

5, 891, 045. 93 

Confirmed as correct and check enclosed..... 

Disputed by debtors: 

(a) Accounts payable to USMC as shown on debtors’ books 
is greater than accounts receivable as shown on USMC 
books_ _ _ _ 

(6) Accounts payable to USMC as shown on debtors’ books is 

less than accounts receivable as shown on USMC books_ 

(c) Amounts denied or not conceded by debtors... . 

(d) Accounts receivable as shown by USMC is actually 
accounts payable of the USMC as shown on “debtors’ ” 
books__ . _ 

1 638, 795. 21 

(e) No amount confirmed but “debtor” requests additional 
information_ _ __ 

Total replies received to Sept. 9,1946__ 


208 

17,380,483.78 





1 Represents accounts receivable on “debtors’” books. 


15. It is noted that only 20 debtors out of the 208 who made reply 
confirmed the amounts as shown on the books of the Maritime 
Commission. Attention is called to the fact that $659,217.65 shown 
as accounts receivable on the books of the Maritime Commission 
should be, according to the “debtors,” $638,795.21 of accounts payable. 

VOYAGE ACCOUNTING 

16. The method of accounting for voyages is illustrative of the 
failure to streamline the accounting system in the light of wartime 
conditions. Traditionally, total ship operating expenses and revenues 
were accumulated by voyages. So far as can be determined this 
practice originated with the Venetians at a time when most voyages 




































ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 23 


were joint ventures and when it was necessary to accumulate all 
expenses and revenues with respect to a particular voyage in order 
that the final profit (or loss) might be equitably divided between the 
participants. This method of accounting, in which the voyage was 
the accounting unit, was in use by the industry at the beginning of 
the war. The costs of the voyage were further broken down into 
the major items of expense, such as, wages, fuel, subsistence, steve¬ 
doring, etc. 

17. Although it is recognized that such information might be useful 
under peacetime conditions (provided the information so collected is 
carefully analyzed for the puipose of increasing the efficiency of ship 
operations), no useful purposes could have been served under wartime 
conditions where ships were knowingly operated regardless of efficiency 
and where it was also known that sufficient personnel would not be 
available for such analysis. From the viewpoint of one who has not 
been steeped in shipping industry accounting methods, it appears 
elementary that the accumulation of principal items of ship operating- 
expense (voyage wages,,voyage subsistence, etc.) by time periods (a 
month or a year) would have been more than adequate under wartime 
conditions, and would have saved thousands of man-hours of account¬ 
ing effort spent by the War Shipping Administration at a time when 
the saving of man-hours was a national problem. (This contention 
is supported by the fact that in very recent weeks the War Shipping 
Administration has abandoned the accumulation of expenses and 
revenues by voyages. Furthermore, we have been informed that no 
use has apparently ever been made of the voyage accountings 
accumulated to date of abandonment.) 

18. This “blind” acceptance of an industry’s peacetime accounting 
methods for use during a war emergency indicates a lack of foresight, 
planning, and comprehension of accounting under emergency wartime 
conditions. Fortunately for the Nation the actual construction of 
ships was not approached with this philosophy. 

MATERIAL AND LABOR CHECKS 

19. Information secured from conversations with various employees 
of the Maritime Commission (and, in some instances, the War Ship¬ 
ping Administration) indicates that in many instances labor and 
material checking was not performed as part of the current auditing 
procedure and in most instances where such checking was performed 
it was generally considered to be ineffective. 1 Although there was 
in some instances time checking “at the gate.” this is considered a 
weak substitute for an effective labor check “on the job.” Since 
labor and material costs constitute the major portion of total costs 
reimbursed on public vouchers (Form 1034), the mere acceptance of 
such costs based on records maintained by the contractor did not, 
in our opinion, adequately protect the Government’s interest. It is 
recognized that the personnel shortages of wartime may have ac¬ 
counted for the absence of material and labor checking; however, in 
our opinion, such checking is considered to be a most important 

i A responsible official of the Maritime Commission, in discussing the Commission’s labor and material 
checking activities, stated that such checking was generally ineffective for the following reasons: (1) Per¬ 
sonnel were not obtainable for this work; and (2) when men were available, he considered that their work 
was not effective because (a) the men themselves loafed, and ( b) they were often subject to interference 
from the contractor’s employees. (There were instances where attempts were made to drop small tools, 
etc., on the checkers.) 



24 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


function in any audit program for the current verification of contract 
costs (exhibit 9). 

GIFTS TO SHIPS SPONSORS 

20. The practice of giving gifts to the sponsors of new vessels has 
been given widespread publicity. Furthermore, the fact that a large 
number of close relatives (wives, daughters, etc.) of War Shipping 
Administration and Maritime Commission officials and employees 
were the recipients of such gifts, is also well known. It is considered 
unfortunate that included in this group were a number of close relatives 
of employees engaged in auditing costs (for reimbursement purposes) 
at the various shipyards. Although, undoubtedly, there were many 
auditors whose decisions were not influenced by such gifts, it is con¬ 
sidered that there might be some doubt as to the effectiveness of the 
audit program in other cases. Since, basically, the effectiveness of 
the Maritime Commission audit rested upon the effectiveness of the 
resident auditors, we consider that this practice of giving and receiving 
gifts cannot go unmentioned in appraising the integrity of the 
accounting and auditing records. 

PROCEDURE IN PREPARING STATEMENTS 

21. Frequent reference in the following pages will be made to “Ac¬ 
counts distribution journal vouchers” and “Balance sheet journal 
vouchers.” In order that these terms may be completely understood 
it seems advisable at this point to explain the procedures of the Mari¬ 
time Commission and the War Shipping Administration in connec¬ 
tion with the preparation of the statements for the fiscal year ended 
June 30, 1943. 

22. During the fiscal year 1943 the two agencies maintained their 
accounts to a large extent on a cash basis as, generally, entries were 
made in the accounts only when cash was actually received or dis¬ 
bursed. (See Maritime Commission major error No. 18.) In the 
preparation of the working papers supporting the financial statements, 
the book balances (arrived at as stated above) w^ere used as the 
starting point. The next step was to analyze the accounts—especially 
the so-called clearing accounts and suspense accounts—and by 
means of the accounts distribution journal vouchers any amounts 
affecting other accounts were transferred to the accounts affected on 
the working papers only. 2 It will be noted that the accounts dis¬ 
tribution adjustments were not actually posted to the ledger accounts 
in the books. 

23. The last step in adjusting the book figures to the figures used 
in the published statements was the preparation of balance sheet 
journal vouchers and the entering of such vouchers on work sheets. 
In effect, the balance sheet journal vouchers were prepared for the 
purpose of putting the statements on an accrual basis. Accordingly, 
two types of items were included in the information recorded on these 
vouchers: (1) Items which were actually recorded on the books in the 
regular course of business subsequent to June 30, 1943, but which 

2 The audit working papers of the Comptroller General indicate that officials of the accounting depart¬ 
ments of the two agencies stated that many analyses were incomplete or not undertaken with respect to the 
June 30, 1943, statements because of the necessity of meeting a deadline date and because of inadequate 
experienced personnel. 



ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 25 


applied to the period ended on that date; and (2), items which had not 
been recorded on the books as of the actual date of preparation of the 
statements, but which were necessary for inclusion in the statements 
as released. Attention is called to the fact that these balance sheet 
journal vouchers were never posted, as such, to the books. 

24. This is another illustration where the procedure, in our opinion, 
appears wasteful of accounting man-hours and is so cumbersome as to 
be conducive to the making of errors. This is another case where the 
attempt to use peacetime procedures appears to have led to the 
extravagant use of “suspense” and “clearing” accounts in a futile 
effort to keep the records current; and this, in'turn, may partially 
account for the use of the foregoing time-consuming procedures in a 
futile attempt to release accurate financial statements. Again, it 
appears that if an intelligent effort had been made in the early days of 
the war to simplify accounting procedures and methods, what now 
appears to be “accounting patchwork” might have been avoided and 
many man-hours saved in its avoidance. 

INADEQUATE REPORTING PROCEDURES 

25. In any organization having a wide scope of activity it is con¬ 
sidered essential, in order to have accurate accounting records, that 
procedures be established and effectively carried out to insure the 
prompt flow of information from the operating divisions to the ac¬ 
counting division. Obviously, if the accounting division does not 
promptly receive necessary accounting information the accounting 
records will be in error to the extent of the deficiency. As is indicated 
in the following discussion of the major errors of omission and com¬ 
mission as set forth in the Comptroller General’s audit reports, it is 
apparent that, although information from some operating divisions 
flowed smoothly to the Budget and Accounts Section (of both the 
Maritime Commission and the War Shipping Administration), in 
many instances information did not appear to reach the accounting 
section within a reasonable period of time, and in some instances it 
never reached the section. Although we have not determined whether 
this failure to receive information promptly was due to the non¬ 
existence of workable reporting procedures or whether it was due to 
failure to enforce such procedures as may have been established, this 
is considered to be an important obstacle to the attainment of accurate 
accounting which should have been brought to the attention of “top¬ 
side” accounting personnel and promptly overcome. 

Major Errors of Omission and Commission as Set Forth in 

the Audit Reports of the Comptroller General for the 

Fiscal Year Ended June 30, 1943 

26. In order to eliminate the necessity for reference to the Comp¬ 
troller General’s audit reports and the replies thereto by the Maritime 
Commission and the War Shipping Administration, the major errors 
of omission and commission as set forth in the audit report will be 
restated in full followed by the reply or by pertinent excerpts there¬ 
from. Facts developed in the review will then be presented together 
with any necessary explanatory remarks or comments. Although 
the desirability of nontechnical language in the following discussion 

94917—47-4 



26 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


is recognized, it is considered that, in certain instances, the restate- 
ment in nontechnical language of the procedures employed with 
respect to the item would fail to reflect clearly the methods actually 
followed. 

MARITIME COMMISSION 

“1. An advance of $2,000,000 to the Kaiser Co., Richmond, 
Calif., was charged to shipways and facilities. This was in¬ 
correct. The item should have been set up as an account re¬ 
ceivable. It was actually collected July 27, 1943.” 

27. Reply: ; * 

“On October 23, 1942, the Commission authorized an interest- 
free advance to Kaiser Co., Inc., for the Richmond housing proj¬ 
ect (part of the facilities) to be repaid as a set-off against moneys 
due under the contract. Nine months later, just after the close 
of the fiscal year 1943, the advance was liquidated, and since it 
had been made in the first instance for a specific reason under 
known circumstances, it could have been handled in a variety 
of accounting entries. Suffice it to say that when this transaction 
was completed for a total expenditure of $13,467,600.41, a result 
well within the limits of reasonable forecasting, the net result 
was an amount of $178,582.26 owing to the contractor in final 
settlement. The criticism is debatable.’’ 

28. Comments 3 and opinion: 

During October 1942 the Commission authorized a $2,000,000 
“interest-free advance” to Kaiser Co., Inc., to meet the working capital 
requirements of the Richmond shipyards’ housing project. It was 
apparently recognized by the Commission that the repayment of the 
subject $2,000,000 might be made “from a set-off” by the Commission 
against a $2,000,000 payment due on the $13,191,200 project. The 
Maritime Commission stated in its reply that this item “could have 
been handled in a variety of accounting entries.” It would appear 
however, that since the Commission action clearly identified this item 
as an “interest-free advance,” the item should have been recorded in 
the accounts as such. 4 Accordingly, it is considered that the comment 
in the audit report with respect to this item was warranted. 

MARITIME COMMISSION 

“2. The recorded cost of ship construction for the Navy Depart¬ 
ment exceeded the funds advanced by the Navy Department for 
such construction by $7,213,693.44. No account receivable was 
set up to cover these costs.” 

3 The bookkeeping with respect to this item was in part as follows: 

(а) In November 1942, account 389 entitled “Other Deferred Charges and Prepaid Expenses” was increased 
by $2,000,000 (contract MCc-2048; voucher 43-X-2119). 

(б) Voucher 44-X-625 (paid in July 1943) showed an amount of $2,178,582.26 from which was deducted 
$2,000,000, leaving a net figure of $178,582.26. The net figure was posted as an increase to account 356-D 
entitled “Shipbuilding and Other Plant Facilities—Housing Facilities.” It was noted, however, that the 
actual ledger card to which this net figure was posted wasentitled“Kaiser Co., Inc.—General” rather than to 
“Kaiser Co., Inc.—Housing Facilities. ” (This posting to the incorrect subsidiary ledger account had not been 
transferred to the correct subsidiary ledger account at the time of our inspection—August 23, 1946.) 

(c) In February 1944 the $2,000,000 amount was transferred out of account 389, “Other deferred charges 
and prepaid expenses” into account 356-D, “Shipbuilding and other plant facilities—Housing facilities— 
Kaiser Co., Inc.—MCc-2048.” The explanation on the journal voucher (MJV 44-1180) effecting the transfer 
w T as as follows: “To adjust coding of voucher 43-X-2119, housing project No. 1, progress payment No. 53,. 
CP213.” 

4 Budget-Treasury regulation No. 3, relating to quarterly financial statements of Government corpo¬ 
rations and enterprises, dated September 1, 1944, requires that amounts advanced for the purchase or manu¬ 
facture of materials and equipment or the construction of plants and other property be reported as assets 
under the caption “Advances to contractors and agents.” 



ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 27 

29. Reply: 

“If the overwhelming impact of all-out war throws into the 
background the necessity for refinements in the accrual account¬ 
ing to which the Commission was committed, and if this factor 
is admissible, then this item is typical of the nonnecessity for such 
refinement of accruals, because, in a last analysis, so long as no 
irregularity or loss is involved , it makes little difference where the 
final cost of joint Government war construction such as this shall 
finally lodge, either to the Maritime Commission, the Navy De¬ 
partment, or to the taxpayer as well. In this instance, the ap¬ 
propriation committee says it is not worth while to make the 
adjustment.” 

30. Comment and opinion: 

The reply admits but does not justify the original error. 

MARITIME COMMISSION 

“3. Twenty-three accounts receivable involving renegotiated 
contracts amounting to $8,099,340.09 were not set up.” 

31. Reply: 

“The General Accounting Office is correct, but it remains to be 
stated that it was very difficult to obtain information concerning 
items of this nature and seldom was this information known within 
the fiscal period of the transaction. It is also pertinent to state 
under this heading that of the 23 items mentioned, one for 
$16,642.87 on the renegotiation contract No. 16668 with the 
Berkeley Steel Construction Co., the Commission’s approval was 
sought by the Price Adjustment Board, September 18, 1943, and 
approved by the Commission on September 23, 1943, and there¬ 
fore was not a transaction of the fiscal year under audit.” 

32. Comments and opinion: 

It is noted that the reply does not question the correctness of the 
Comptroller General’s adjustment with the exception of the Berkeley 
Steel Construction Co. item. Failure to include 22 of the 23 accounts 
eceivable is therefore admitted. 

33. With respect to the questioned item it apparently is true that 
the Commission approved the renegotiation agreement on September 
23, 1943; however, such approval was made as of June 2, 1943. 
Furthermore, it is noted that the Berkeley Steel Construction Co. 
item was included in the “Summary of the results of renegotiation 
by the Price Adjustment Board of the United States Maritime Com¬ 
mission as of June 30, 1943.” Accordingly, in our opinion, the Comp¬ 
troller General was correct in respect to this item also. (It should be 
noted that the financial statements of the Maritime Commission were 
not issued until March 29, 1944. Although the exact date of release 
of the above-mentioned “Summary of the results of renegotiation” is 
not known, certainly this information must have been available prior 
to March 29, 1944.) 

34. The statement in the reply that “it was very difficult to obtain 
information concerning items of this nature” appears deserving of 
comment—especially in view of the statements made in the foregoing 
paragraph 25. Unless there are some difficulties which are not appar¬ 
ent, it would appear to be an elementary problem to establish and 


28 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


enforce adequate procedures for the prompt reporting of necessary 
accounting information from the Price Adjustment Board to appro¬ 
priate personnel in the accounting section. 

MARITIME COMMISSION 

“4. Duplication of adjusting entries involving working funds 
totaling $66,812,880.50.” 

35. Reply: 

“A duplication of post closing journal entries caused this error 
and the Comptroller General’s criticism is well laid. Beginning 
with the preparation of the 1945 balance sheet, however, the 
procedure of post closing journal vouchers was voluntarily ended 
as the result of an extensive survey of procedures and practices 
which involved many improvements in the procedure of fiscal 
year-end adjustments.” 

36. Comments and opinion: 

The reply admits these errors but states improvements have been 
made in the procedure of fiscal year-end adjustments beginning with 
the preparation of the June 30, 1945, balance sheet. (The 1945 pro¬ 
cedures have not been reviewed; therefore, no opinion may be ex¬ 
pressed as to whether or not improvement actually has been made.) 

37. A number of items were involved in the $66,000,000 adjust¬ 
ment of the Comptroller General. The bookkeeping with respect to 
a $2,324,285 item (included in the $66,812,880.50) is summarized in 
order to portray one type of error made and to illustrate the use of 
suspense accounts where such use does not appear to be essential. 

The item was originally recorded as follows: 

165.2 Accounts receivable_ $2, 324, 285 

093. Suspense_._ $2, 324, 285 

To set up billing to the INavy Department (by increasing accounts re¬ 
ceivable and placing an equivalent amount in suspense). 

At the time the cash was received the following entry was made: 

101. Cash_ $2, 324, 285 

566. Working Fund Reserve—Navy_ $2, 324, 285 

To record receipt of cash from Navy (by increasing cash with a corre¬ 
sponding credit to the Navy Working Fund Reserve). 

Since the bookkeeping record was incomplete at this point, the Com¬ 
mission attempted to correctly show the item on the balance sheet and 
for this purpose made the following accounts distribution journal 
entry. (As stated above, accounts distribution journal entries were 
not posted to the books.) 

093. Suspense_$2, 324, 285 

566. Working fund reserve—Navy_$2, 324, 285 

It should be noted that the foregoing entry did not result in a cor¬ 
rect statement for balance-sheet purposes, but resulted in the follow¬ 
ing presentation: 

Cash- $2, 324, 285 

Accounts receivable_ 2, 324, 285 

Working fund reserve—Navy_ 


$4, 648, 570 












ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 29 


Since, obviously, the account receivable did not exist and the Navy 
working fund was overstated, representatives of the Comptroller 
General correctly adjusted the accounts as follows: 

566. Working fund reserve—Navy_$2,324,285 

165.2. Accounts receivable_ $2, 324, 285 

To correct duplicate posting to account 566 and to remove open debit to 
account 165.2. 


MARITIME COMMISSION 

“5. Erroneous billing to the Navy Department in the amount of 
$3,186,342 for a vessel transferred to War Shipping Administra¬ 
tion.” 

37. Summary of reply: 

This item concerned the steamship Tracker , and the entry under 
criticism was correctly adjusted in the Commission’s financial state¬ 
ments for the fiscal years 1944 and 1945. 

38. Comment and opinion: 

This item is discussed in further detail in connection with Maritime 
Commission error No. 17. It is noted that the reply does not state 
the steamship Tracker was under the control of the War Shipping 
Administration at June 30, 1943. This apparently was the case. 
It appears that the Comptroller General was correct in his adjustment,, 
and it further appears from available information that the records of 
the Maritime Commission were not corrected until after the error 
had been called to the attention of Maritime Commission employees 
by representatives of the Comptroller General. 

MARITIME COMMISSION 

“6. Billing to the Navy Department in the amount of $1,480,- 
000 properly includible in 1944 transactions.” 

39. Reply: 

“This item concerned concrete barge No. 1 constructed by the 
Concrete Ship Constructors, contract MCc-1879, and according 
to the Commission’s published progress report showed delivery 
to the Navy Department on April 13, 1943. Accordingly, the 
entry on the books correctly reflected the known conditions for 
fiscal 1943. Again, subsequent information disclosed that the 
vessel had actually been delivered to the War Shipping Adminis¬ 
tration during fiscal 1943 and was later returned to the Mari¬ 
time Commission on July 22, 1943 (fiscal 1944), at which 
time it w T as delivered to the Navy Department. This may be 
an example of the noted ‘gap between recorded fact and actual 
fact’ but the recorded fact, according to official sources in fiscal 
1943, was at variance with the actual fact not made known to 
the accountants until fiscal 1944. The record shows, but the 
audit report does not state, that under date of June 26, 1944, 
this item was billed to the Navy Department and at that point 
its accounting phases were in audited peace.” 

40. Comment and opinion: 

This item concerns concrete barge No. 1 which is mentioned further 
in connection with Maritime Commission error No. 17. Although the 





30 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


Commission's published progress report showed delivery of concrete 
barge No. 1 to the Navy Department on April 13, 1943, the reply 
states that “Subsequent information disclosed that the vessel had 
actually been delivered to the War Shipping Administration during 
fiscal 1943 and was later returned to the Maritime Commission on 
July 22, 1943 (fiscal 1944), at which time it was delivered to the 
Navy Department." 

41. The fact that concrete barge No. 1 was delivered by the Mari¬ 
time Commission to the War Shipping Administration during fiscal 
year 1943 and the Maritime Commission did not know it, is indicative 
of slow transmission of accounting information to the Budget and 
Accounts Section and is further illustrative of a lack of coordination 
accountingwise between the Maritime Commission and the War Ship¬ 
ping Administration. 

42. In the reply of the Maritime Commission it is stated that the 
item was billed to the Navy on June 26, 1944. It is noted that this 
was more than 11 months after the apparent delivery to the Navy 
Department on July 22, 1943. Such a delay does not appear to be 
justified. 

MARITIME COMMISSION 

“7. Erroneous change and correction entry of a collection of 
$2,246,726.78 from the American Hoist & Derrick Co., resulting 
in an overstatement of accounts receivable and an overstatement 
of prior year earnings in a like amount." 

43. Keply: 

“On June 8, 1943, the relative collection was received and prop¬ 
erly deposited to miscellaneous receipts in the Treasury Depart¬ 
ment. It was the final payment under the renegotiation of excess 
profits for fiscal 1943. . It was recorded as an account receivable 
under the admittedly cumbersome system but was erroneously 
reflected as an item of profit and loss. During fiscal 1944 the 
whole transaction was properly adjusted on the accounting 
records. The word ‘earnings', applied to Government appro¬ 
priations, is questionable." 

44. Comments and opinion: 

The reply admits the error. The method used in recording this 
transaction is set forth below in order to indicate what was probably 
meant by “cumbersome system" in the reply. With respect to this 
item no entry had been made to record the amount receivable until 
the date on which the cash was apparently received (June 8, 1943) at 
which time remittance manifest C-43-2129 (see exhibit 2) was used 
as a basis for the following entries: 

101. Available Funds on Deposit—U. S. Treas¬ 
ury-$2, 246, 726. 78 

101. Available funds on deposit—U. S. 

Treasury- $2, 246, 726. 78 

165.20. Accounts receivable—Suspense_$2, 246, 726. 78 

165.3. Accounts receivable—Mis¬ 
cellaneous debtors_$2, 246, 726. 78 

(American Hoist & Derrick Co. check dated June 3, 1943.) 

By means of an accounts distribution journal voucher the following 
entry was made for balance sheet purposes: 






ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 31 


165.3. Accounts receivable—Miscellaneous debt¬ 
ors_$2,246,726.78 

090. Accountings for prior years—• 

Fiscal year 1942_•_$2, 246, 726. 78 

The foregoing had the following effect on the June 30, 1943, financial 
statements: 

Increased accounts receivable by_$2, 246, 726. 78 

Increased 1942 “profit”_$2, 246, 726. 78 

In order to correct the statements the Comptroller General made the 
following adjustment, which appears to be correct: 

Profit and loss, 1942_$2, 246, 726. 78 

Accounts receivable_ $2, 246, 726. 78 

45. During August 1943 (approximately 2 months after the date of 
the cash collection) invoice 44-282, labeled for “accounting purposes 
only”, was recorded as follows: 

165.3. Accounts receivable—Miscellaneous debt¬ 
ors_ $2, 246, 726. 78 

165.20 Accounts Receivable—’Suspense_ $2, 246, 726. 78 

(American Hoist & Derrick Co., renegotiation contract.) 

46. Five photostats are presented as exhibit 2 in order to illustrate 
some of the basic documents with respect to the foregoing transac¬ 
tions. It should be noted that the remittance manifest (sheet 1 of 
exhibit 2) was apparently not signed, and it is also noted that the 
reference appearing thereon (C-43-451) is in error (see sheet 2, exhibit 
2). Although it is recognized that the reference error is probably 
merely an error in typing, it is such errors which make difficult the 
tracing of transactions through the books. 

MARITIME COMMISSION 

“8. Failure to reclassify ‘completed small craft’ resulting in 
an understatement of completed construction and an overstate¬ 
ment of ‘deferred charges and prepaid expenses’.” 

“13. Failure to record liabilities of $1,123,664.42 relating to 
the small craft program resulting in an understatement of both 
assets and liabilities.” 

(These two errors are combined because they concern two 
aspects of the same problem and because only one reply is made 
by the Maritime Commission to both items.) 

47. Reply: 

“This was identified in the defense aid program and here we 
have another cause for accounting imperfection not readily charge¬ 
able to any person or function. There was secrecy concerning 
the movement and allocation of small vessels. This information 
being the basis for reclassification, and necessary for proper dis¬ 
tribution of construction cost, was not available. Accordingly, 
the construction costs and their disposition as to small craft as 
such was deferred until the information necessary for the proper 
distribution of the item was available.” 

48. Comments and opinion: 

In its reply the Maritime Commission apparently does not question 
the validity of the adjustments as made by the Comptroller General 










32 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


but does indicate that necessary information with respect to the re¬ 
classification of “completed small craft” was not available. So far as 
can be determined necessary information was available months prior 
to the release of the financial statements, and was distributed to ap¬ 
propriate officials of the Commission, including the Director of 
Finance. 5 

49. In our opinion this error resulted from carelessness in the 
preparation of the June 30, 1943, financial statements. This opinion 
is substantiated by the fact that bad the same procedure been followed 
in connection with small craft as was followed in adjusting the book 
figures with respect to large vessels, this error apparently would not 
have appeared in the financial statements. 

MARITIME COMMISSION 

“9. Classification of $1,019,483 as ‘deferred credit’ when it 
actually represented a potential account payable to the American 
Mail Line, Ltd., for prepaid construction of new ships.” 

“11. Classification of $3,877,186.22 as ‘deferred credit’ when it 
actually represented a potential account payable for prepaid 
construction of new ships.” 

(These two errors, being similar, are combined.) 

50. Reply to item 9: 

“In this the Comptroller General is in error—by law. Section 
510.2 (b) of the 1936 act authorized the Commission to acquire 
any obsolete vessel in exchange for an allowance of credit. Such 
allowance to be determined at the time the owner contracts for the 
construction or purchase of a new vessel. ‘The allowance shall 
not be paid to the owner of the obsolete vessel but shall be applied upon 
the purchase price of a new vessel .’ This item was correctly in a 
deferred credit account because it could not be paid to the owner 
of the obsolete vessel in any event and, specifically in the law, 
could only be credited to the purchase price of a new vessel.” 

51. Reply" to item 11: 

“The General Accounting Office criticism is not correct. This 
is another transaction under section 510.2 (b) of the 1936 act 
governing the disposition of trade-in values of old vessels to be 
applied on the purchase price of new vessels. This item is not a 
potential account payable, but is a deferred credit to new con¬ 
struction as originally recorded.” 

52. Comments: 

The controversy regarding these items seems to be principally one of 
terminology and classification for balance sheet purposes. The 
Comptroller General refers to the items as “potential accounts pay¬ 
able” and the reply insists that the items are “deferred credits” (or as 
stated in the reply to error No. 11, “deferred credits to new con¬ 
struction”). 

53. The question at issue seems to be partially dependent upon the 
interpretation to be placed upon section 510.2 (b) of the Merchant 

. 5 Tiie necessary information was contained in schedule 5-c, sheet 3, of United States Maritime Commis¬ 
sion financial statement (partly estimated), fiscal year 1943, which was transmitted by letter dated Decem¬ 
ber 4, 1943, by R. E. Anderson, Director of Finance to Chairman Land and other Commissioners. The 
copy examined indicated that, ament others, the following were furnished copies: Mr Prows 0 Secretary 
Williams, Mr. Harford, executive director, director of finance, Chief, Budgetand Accounts Section; Mr 
Buchhols, Mr. Keene, Bureau of the Budget (Mr. A. J. Horn), and assistant director of finance (Operations)' 



ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 33 

Marine Act, 1936. The reply of the Maritime Commission quotes 
part of this section. The representatives of the Comptroller General 
who were concerned with the 1943 audit apparently relied upon the 
last sentence of this section which states: “In case the new vessel is 
not constructed under the provisions of this act, the allowance shall, 
upon transfer of the obsolete vessel to the Commission, be paid, for 
the account of the owner, to the shipbuilder constructing such new 
vessel.” 

54. It is believed that the term “deferred credits” generally refers 
to either income recorded during a fiscal period but applicable to a 
future period or periods, or to an item such as unamortized premium 
on bonds considered as a reduction in the interest expense of future 
periods. Under the circumstances the treatment as a deferred credit 
is at least questionable. 


MARITIME COMMISSION 

“10. Failure to credit ‘ship construction’ with $278,624.53 
shown as ‘deferred credits’ but identified as inventories turned 
over to operators of newly constructed vessels.” 

55. Reply: 

“The last two figures in the amount above have been trans¬ 
posed in the audit report. This is a valid criticism but does not 
state that the Commission’s accounts had been adjusted properly 
to reflect the facts, namely, as a credit to ship construction.” 

56. Comments and opinion: 

According to the audit report as published in the Congressional 
Record, the Maritime Commission reply is correct with respect to the 
transposition of the last two figures, amounting to 18 cents. (Else¬ 
where in the audit report the subject amount was correctly stated.) 
It is noted that otherwise the Commission does not question the 
adjustment. 

57. This item involves inventories on 50 newly constructed vessels, 
which inventories ranged from $4,145.56 to $9,919.82 (total 
$278,624.53). Under a reasonable system of inventory control it 
would appear that these items should have been recorded at the time 
of transfer. In the instant case, however, the subject amount was 
not recorded on the books as of June 30, 1943, but was brought into 
the financial statements by means of balance sheet journal vouchers 
Nos. 4 and 6. The explanation to balance sheet journal voucher No. 
6 was: “To record for balance sheet purposes inventories on board 
newly constructed vessels transferred to WSA and delivered to 
operators under “General agency agreements.” These inventories 
have been charged to the various general operators on the books of 
WSA through account No. 094.” 

# 

MARITIME COMMISSION 

“12. Failure to record $2,663,186.22 of inventory actually on 
hand in Commission’s own warehouse at Emeryville, Calif.” 

58. Reply: 

“This is a prime example of information not available and the 
disorder surrounding the construction of ships without regard to 

94917—47 - 5 



34 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 

cost. It was not until fiscal 1944 that this warehouse was known 
to be a Commission warehouse. Prior to that time it was a 
storage yard for construction material included in the cost of 
ship construction by contractors at various west coast shipyards 
and so recorded on their books. When, in fiscal 1944, this prop¬ 
erty became an official Commission warehouse, an inventory of 
these materials was taken and subsequently recorded on the 
books in Washington. There is room for doubt that the inventory 
so recorded was relieved in relative cost at the various shipyards 
involved and it may be duplication, not mentioned in the audit 
report.” 

59. Comments and opinion: 

So far as can be determined the subject warehouse was discovered 
during a survey trip by representatives of the Comptroller General 
made during June 1944 for the purpose of investigating the actual 
existence of warehouse inventories. Apparently, there was no record 
of this warehouse in the Washington records of the Commission at the 
time of the trip. - 

60. With respect to the statement in the reply that this property 
became an official Commission warehouse in fiscal 1944, attention is 
invited to exhibit 3, which is a copy of a letter dated November 2, 
1944, from C. W. Flesher, Director of the United States Maritime 
Commission regional construction office, Oakland, Calif., which states 
that “The USMC Emeryville warehouse was acquired for this distinct 
purpose and the first material was received on June 30, 1942.” 

MARITIME COMMISSION 

“14. Failure to record liabilities of $5,272,100.10 representing 
a judgment by the Supreme Court in favor of the Bethlehem 
Shipbuilding Corp., Ltd., resulting in an understatement of 
accounts payable and overstatement of the capital account of a 
like amount.” 

61. Excerpts from reply: 

“First, the ‘capital account’ applies to appropriations that 
were specifically not available. On April 1, 1942, the Supreme 
Court affirmed a lower court judgment in favor of the above 
company. The question raised in the audit report was our 
failure to record a liability upon the judgment of the Supreme 
Court. The answer is whether a liability can be set up against 
pubhc,money before it is appropriated. To do so would be the 
anticipation of the will of Congress.” 

62. Comments and opinion: 

This statement seems to be incorrect, based upon page 1 of “General 
comments,” United States Maritime Commission statement of assets 
and liabilities as at June 30, 1943: “During the period July 1, 1942, 
to June 30, 1943, direct appropriations in the amount of $4,985,367,- 
615.10 were made to the United States Maritime Commission for the 
furtherance of its functions and related activities. Of this amount, 
$980,080,000 was appropriated under the Independent Offices Appro¬ 
priation Act of 1943, approved June 27, 1942. The First Deficiency 
Appropriation Act of 1943, approved March 18, 1943, appropriated 


ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 35 

the sum of $4,000,000,000 and an additional sum of $5,287,640.10 to 
pay judgments decreed by the United States courts against the Gov¬ 
ernment of the United States in favor of the Bethlehem Shipbuilding 
Corp., Ltd. * * * The judgments of the Bethlehem Shipbuilding 
Corp., Ltd., were paid by certificates of settlement issued by the 
General Accounting Office. These payments were made on April 17, 

1943, July 3, 1943, and July 8, 1943, in the amounts of $15,540, $25, 
and $5,272,075.10, respectively." 

63. From the foregoing quotation it is apparent that the employee 
or official who actually prepared the reply of the Commission had not 
read the general comments attached to the Commission's financial 
statements as released. The discussion with respect to “anticipation 
of the will of Congress" appears irrelevant since the appropriation 
had already been made. 

64. It is noted that the reply also attempted to justify the Com¬ 
mission's treatment by stating the fact that the Bethlehem Steel 
Corp. did not set up the receivable in its 1942 statements. This 
appears to be a reasonable procedure, since, as quoted above, the 
appropriation was not approved until March 18, 1943. 

MARITIME COMMISSION 

“15. Reduction of book value of Hoboken terminal to nominal 
amount of $1 without official Commission action when records 
reflect adjusted cost of acquisition to be $7,098,203.00." 

65. Excerpts from reply: 

This item is “still in bookkeeping conflict." The subject terminal 
was carried at a value of $1 in the balance sheet of the Commission 
as of June 30, 1937, 6 as prepared by “nationally known certified 
public accountants." 

66. Comments and opinion: 

It is considered significant that the Hoboken terminal has been set 
up on the balance sheets of the Maritime Commission as at June 30, 

1944, and June 30, 1945, at the $7,098,203 figure. This fact indicates 
that, despite the reply made, the Commission apparently does not 
object too strongly to the adjustment made by the Comptroller Gen¬ 
eral in connection with the June 30, 1943, audit report. 

67. Although not pertinent to the June 30, 1943, statement where 
the terminal was carried at $1, two observations may be made with 
respect to the showing of the 1944 and 1945 statements: (a) Since it 
appears to be the policy of the Commission to record depreciation, it 
is considered that such a reserve should have been provided with 
respect to this terminal on its balance sheets. Available information 
indicates that the Comptroller General attempted to provide such a 

« Schedule A-6-1 (terminals and fuel station as at June 30, 1936) of the U. S. Shipping Board Bureau 
and U. S. Shipping Board Merchant Fleet Corporation lists the Hoboken terminal at a cost of $7,098,203| 
with no reserve for depreciation, leaving a net book value of $7,098,203. 

Apparently on April 30, 1938, Mr. D. F. Houlihan, Director, Division of Finance, U. S. Maritime Com¬ 
mission, forwarded the 1937 balance sheet and income and expense statement to the U. S. Maritime Com¬ 
mission with the following comments to support schedule A-8: 

“Terminals, at nominal value: 

“Nominal values of $1 each are stated for the five terminals either owned or operated by the Commission. 
With the exception of the Hoboken terminal, the books of the Commission record the value as $1 each. In 
the case of the Hoboken terminal, the value at present is recorded as $7,098,203, to which, for balance-sheet 
purposes, a reserve of $7,098,202 is applied, resulting in the nominal value of $1. 

“The terminal properties located at Boston, Brooklyn, and Philadelphia are operated by the Commis¬ 
sion on permit from the War Department, while the properties at Hoboken and Norfolk are owned and 
operated wholly by the Commission. In the absence of an appraised value, the nominal value of $1 each 
is applied." 



36 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


reserve for depreciation when preparing the 1943 audit report but 
was unable to locate any detailed information upon which to intelli¬ 
gently estimate an appropriate amount for such reserve. ( b ) Since 
part of the Hoboken terminal facilities were destroyed by fire on 
August 12, 1944, it would appear that the figure used on the June 30, 
1945, statement should not only have been reduced by appropriate 
provision for depreciation but also should have been reduced by an 
amount to reflect the loss in value resulting from the fire. 7 

MARITIME COMMISSION 

“16. Duplication of change and correction entries resulting 
in an overstatement of interest receivable in the amount of 
$644,871.95.” 

68. Reply: 

“The General Accounting Office is correct in this criticism but 
failed to state that in the first month of the following year, July 
1943, the proper adjustment was made—before the audit.” 

69. Comments and opinion: 

Exhibit B of the Maritime Commission’s statement of assets 
and liabilities, etc., as at June 30, 1943, sl ows interest earned of 
$4,881,987.38. This amount consists of the following items: 

Net interest earned recorded on the books in account 675_$3, 494, 037. 78 

Year end adjustments: 

Accounts distribution_$454, 573. 77 

Balance sheet journal vouchers_ 794, 891. 76 

- 1, 249, 465. 53 

Interest and commitment fee revenue, account 676_ 138, 484. 07 

Total per published statement_ 4, 881, 987. 38 

Erroneous adjustments were deducted as follows by Comp¬ 
troller General: 

Interest on notes receivable_$604, 326. 36 

Interest on construction progress pay¬ 
ments- 40, 545. 59 

- 644, 871. 95 

Computation of actual interest earned_ 4, 237, 115. 43 

70. The balance sheet journal vouchers to adjust the books to the 
balance sheet figures were prepared by the Commission on the fol¬ 
lowing dates: 

Debit Credit 

BSJV No. 14, prepared Dec. 27, 1943 (in pencil)_ $711, 989. 02 

BSJV No. 21, prepared Jan. 26, 1944_$328, 111. 66 

BSJV No. 24, prepared Jan. 28, 1944 (in pencil)_ 411, 014. 40 

1, 123, 003. 42 
328, 111. 66 

Net amount of balance sheet journal vouchers (as above)_ 794, 891. 76 

Since the major portion of the duplication was included in the 
$794,891.76 adjustment, and since these balance sheet journal vouchers 
were not prepared until December 1943 and January 1944, it seems 
that the correction of the erroneous figures in the above balance sheet 
journal vouchers could not have been prepared “in the first month of 


7 A newspaper report written on the day of the fire indicated a loss of $4,000,000. 



















ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 37 


the following year, July 1943—before audit” as stated by the Mari¬ 
time Commission reply. 


MARITIME COMMISSION 

“17. Failure to include $3,955,000 of vessels transferred to 
other agencies in the adjustment of capital for such transfers.” 

71. Reply: 

“The explanation under this head is similar to that under 
items 5 and 6 above. The information necessary for proper 
final accounting was not known. No capital was involved.” 

72. Comments and opinion: 

As stated in the reply this item is one aspect of the errors com¬ 
mented upon in connection with items 5 and 6, as follows: 


Error No. 5—S. S. Tracker _ $3, 186, 342 

Less: Excess of construction costs over working funds provided. 711, 342 

2, 475, 000 

Error No. 6—Concrete barge No. 1 (not controlled by Navy Depart¬ 
ment as at June 30, 1943)_ 1, 480, 000 

Error No. 17, as above_ 3, 955, 000 


73. So far as can be determined from a quick review, the facts with 
respect to the steamship Tracker are as follows: On January 27, 1913, 
the Navy Department was billed for $2,475,000 to cover the transfer 
of the steamship Tracker to the Navy Department. However, title 
did not pass to the Navy Department; in fact, at June 30, 1943, the 
steamship Tracker was under control of the War Shipping Adminis¬ 
tration. Accordingly, the vessel should have been included in the 
control account relating to vessels transferred to the War Shipping 
Administration rather than presented as a receivable item from the 
Navy. In billing the Navy Department for the steamship Tracker 
(see exhibit 4), accounts receivable were increased with a correspond¬ 
ing entry to a suspense account. At June 30, 1943, for statement 
purposes, the $2,475,000 in the suspense account was transferred 
erroneously by the Commission from the suspense account to the 
working fund reserve account (as an increase). Since the title to 
this vessel had not passed to the Navy Department, the inclusion of 
the $2,475,000 in the balance of accounts receivable from the Navy 
was erroneous (and the inclusion of $2,475,000 in the working fund 
reserve balance was similarly in error). Examination of the accounts 
subsequent to June 30, 1943, indicates that the $2,475,000 has been 
correctly adjusted. 

74. With respect to the statement in the reply that “The information 
necessary for proper final accounting was not known,” attention is 
invited to exhibit 4 (credit memorandum No. C44-378, dated August 
18, 1943), which indicates that as of August 1943 (approximately 7 
months prior to the release of the Commission’s financial statements) 
it was apparently known that the steamship Tracker was not to be 
transferred to the Navy. Furthermore, confidential report No. 
190-92, part one, “Vessels under the control of War Shipping Admin¬ 
istration,” issued by the Charters and Agencies Section, Division of 
Operations, War Shipping Administration, based on information re¬ 
ceived through November 15, 1943, lists on page 165 the steamship 







38 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 

Tracker as having been delivered to British registry under date of 
January 31, 1943. 

75. In connection with the credit memorandum (exhibit 4) men¬ 
tioned in the foregoing paragraph, it should be noted that the only 
signature appearing thereon is that of “Jack Haney,” who, according 
to the Personnel Section of the Commission, had a classification of 
CAF-8 at the time the credit memorandum was prepared. The 
practice of allowing an employee to write off an account receivable 
in excess of $2,000,000 without further approval by a responsible 
official is a practice which most businesses would condemn. 

MARITIME COMMISSION 

“18. Improper charging to ship construction costs of advance 
payments totaling $1,150,483.41 to the Worthington Pump & 
Machinery Corp. instead of accounts receivable.” 

76. Reply: 

“In accordance with the terms of contract No. MCc-3182 with 
the Worthington Pump & Machinery Corp. progress payments 
1 and 2 were made in the amounts of $641,533.50 and $508,- 
949.91 and properly charged to our construction cost accounts. 
These payments occurred in December 1942 and January 1943 
(fiscal 1943), respectively. On February 20, 1943, to be noted 
as 1 month after the payments were made, addendum No. 10 to 
the contract was issued which provided for the refunds of the 
moneys paid under progress payments 1 and 2. Accordingly, 
the payments were refunded to the vendor prior to June 30, 1943, 
that is to say, in May and June, respectively. The General 
Accounting Office is wrong.” 

77. Comments and opinion: 

The facts with respect to the transaction are apparently as follows: 
Payments of $1,150,483.41 were made to the Worthington Pump & 
Machinery Corp. under a purchase order which was issued as a pool 
order covering 260 turbo-generator units against which cancellations 
were to be made as individual orders were received from private ship¬ 
yards or from the Maritime Commission. The vendor advised the 
Commission on January 30, 1943, that the pool order should be can¬ 
celed inasmuch as firm orders had been received from shipbuilders for 
all of the units involved. The pool order was canceled by an adden¬ 
dum made as of February 20, 1943. At this time, if not before, it 
appears that the amount previously paid out under the purchase 
order should have been set up in the accounts as a receivable by the 
Maritime Commission. This, however, was not done. When the 
checks were received from the vendor (prior to June 30, 1943) the 
amounts were recorded as accounts receivable as a “wash” transac¬ 
tion, i. e., charged to and deducted from accounts receivable simul¬ 
taneously. 

78. The Maritime Commission reply, particularly where it is stated 
that “The General Accounting Office is wrong,” apparently assumes 
that the subject item resulted in an adjustment to the June 30, 1943, 
financial statements. Had the audit report been carefully analyzed 
it would have been seen that the Comptroller General did not make 
an adjustment with respect to this item. According to represent¬ 
atives of the Comptroller General this matter was presented as a 


ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 39 


major error of omission or commission in support of the second recom¬ 
mendation in the audit report—“That advances should be recorded 
as receivables.” (The statement in the reply that “the payments 
were refunded to the vendor” apparently is in error, since the pay¬ 
ments were actually refunded to the Commission.) 

MARITIME COMMISSION 

“19. The over-all control of payments to shipbuilding con¬ 
tractors is not maintained in the accounts and the effectiveness 
of the internal audit can only be determined by test and sampling 
methods or a complete duplication of the audit processes.” 

79. Keply: 

The Commission reply is a lengthy and general statement 
which does not specifically confirm or deny the criticism of the 
Comptroller General. 

80. Comments and opinion: 

It is considered that many of the preceding comments indicate in 
a general way the validity of this contention by the Comptroller 
General. One further illustration is presented: Contract MCc-2047, 
with Kaiser-Vancouver, was suspended by addendum No. 3 on June 
18,1942, and was formally canceled by Commission action on February 
17, 1944. However the Commission’s construction accounts showed 
the following amounts in August 1944: 

Vessels under construction MCc-IOtf 

Balance, June 30, 1943_ $12, 499, 996. 49 

Balance, June 30, 1944_ 16, 219, 138. 17 

Balance, July 31, 1944_ 16, 224, 991. 48 

Thus it is noted that costs continued to accumulate on the books 

of the Commission months after the contract was suspended. Appar¬ 
ently only two Liberty cargo vessels, estimated cost of $2,000,000 
each, were delivered under this contract: (a) Hull No. 353, delivered 
July 22, 1942, and ( b ), hull No. 354 delivered August 8, 1942. 

WAR SHIPPING ADMINISTRATION 

4 

“1. Collections of insurance premiums prior to June 30, 1943, 
in the amount of $3,084,728.89, were not recorded. Cash was 
consequently understated and accounts receivable overstated in 
this amount.” 

“2. Collateral deposits, $68,650, pertaining to Warshipopen- 
cargo insurance policies were received prior to June 30, 1943, 
but were not recorded. Cash and accounts payable were thereby 
understated.” 

81. Summary of reply: 

The reply to error No. 1 states that “the adjustment made by 
the Comptroller General’s auditors is technically correct, although 
such collections were not actually reported by Albert Wilcox 
& Co., Inc., until after June 30, 1943, and were properly 
recorded, in the books of account, prior to receipt of the Comp¬ 
troller General’s report.” The reply to error No. 2 states that 
“this item is in the same category as ‘1’ above.” 





40 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 

82. Comments and opinion: 

Although the foregoing statement is correct, it would appear that 
these errors in the War Shipping Administration financial statements 
as of June 30, 1943 (transmitted April 15, 1944), would have been 
avoided had the war risk insurance fund cash balances been recon¬ 
ciled prior to the release of the statements. The importance of 
reconciling cash balances has been discussed in paragraphs 10, 11, 
and 12 of this preliminary report (also see exhibit 1). As set forth 
in paragraph 11 the statement in the published report of the War 
Shipping Administration to the effect that the balances of all appro¬ 
priations and working funds have been reconciled with the Treasury 
balances, appears to be a misstatement of fact. 

WAR SHIPPING ADMINISTRATION 

“3. Unrecorded checks on hand or in transit at June 30, 1943, 
in the amount of $300,862.96, resulted in an overstatement of 
accounts receivable, $234,842.65, and understatement of the 
reserve for war-risk insurance, $66,020.31.” 

83. Excerpts from reply: 

The reply does not question the validity of the adjustment made 
by the Comptroller General. It states however, that “the referred 
to unrecorded checks on hand were, in reality, certificates of 
deposit covering deposits made at various Federal Reserve banks.” 

84. Comment: 

An examination of the available records with respect to a few of the 
subject items indicates that they were actually “checks” rather than 
“certificates of deposit.” One of the records reviewed was “Schedule 
of collections, standard Form No. 1044—Revised, schedule No. 
WRI-44-3.” All of the checks on this schedule apparently were 
received during June 1943 and were deposited with the Treasury 
Department on July 10, 1943 (certificate of deposit No. 1328). 

WAR SHIPPING ADMINISTRATION 

“4. An incomplete transfer of cash, $956,128.20, from Navy 
working funds to the War Shipping Administration revolving 
fund resulted in an understatement of cash and accounts pay¬ 
able.” 

85. Reply: 

“We are not in accord with the foregoing adjustment made by 
the Comptroller General’s auditors inasmuch as it is contrary to 
our established procedure for recording receipts and disburse¬ 
ments. Under our procedure, standard Forms 1064, ‘Schedule 
of disbursements’; 1081, ‘Schedule of adjustments’; and 1044, 
‘Schedule of collections,’ are used for the posting of receipts and 
disbursements prior to actual accomplishment by the chief 
disbursing officer, Division of Disbursement, United States Treas¬ 
ury Department. 

“The adjustment in question involves our schedule of adjust¬ 
ments No. WSA-8494, dated June 26, 1943, to which was attached 
our voucher (standard Form 1080), in the amount of $956,128.20 



ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 41 


reimbursing the War Shipping Administration’s revolving fund 
from 11X3905.001, “Working fund, executive, emergency man¬ 
agement,” in the amount of $953,775.33, and 1135915.001, 
“Working fund, executive, War Shipping Administration, 1943,” 
in the amount of $2,352.87. The referred to Form 1080 was 
actually paid by the chief disbursing officer on July 5, 1943, by 
check No. 5900. The Comptroller General’s auditors, in effecting 
this adjustment, apparently contend that the disbursement should 
have been recorded during the month of July rather than in the 
month of June 1943. We do not subscribe to their theory in this 
connection.” 

86. Comments and opinion: 

As indicated in the reply the transaction which gave rise to the sub¬ 
ject adjustment involves a transfer of cash out of one fund into another. 
In order to correctly state the cash on the consolidated statement of 
the War Shipping Administration it would have been necessary, of 
course, to treat the transaction as a simultaneous cash disbursement 
from one fund and a cash receipt into the other fun:!. However, the 
War Shipping Administration did not do this but, instead, recorded 
the disbursement as a transaction of the fiscal year ended June 30, 
1943, and recorded the receipt as a transaction of the fiscal year ended 
June 30, 1944. Although there may be a legitimate difference of 
opirion as to whether this is properly a transaction of fiscal 1943 or of 
fiscal 1944, 8 it is apparent that in order to correctly show the cash on 
the June 30, 1943, statements it was necessary either to treat the dis¬ 
bursement as a transaction of fiscal 1944 or to pick up the receipt as a 
transaction of fiscal 1943. Therefore the adjustment made by the 
Comptroller General appears to be appropriate. 

WAR SHIPPING ADMINISTRATION 

“5. Included as a reduction of accounts receivable, Navy De¬ 
partment, at June 30, 1943, was the amount of $1,200,000 repre¬ 
senting a collection from the Navy Department to cover the 
purchase of the steamship President Madison, an official of the 
accounting department stated that the vessel will not be pur¬ 
chased for the Navy Department, and the collection is to be re¬ 
funded. The credit balance of $1,200,000 was therefore trans¬ 
ferred as an increase to accounts payable.” 

87. Summary of reply: 

The reply sets forth complete details concerning this transaction 
and the accounting procedures followed in respect thereto. The 
reply concludes by stating that “based upon the foregoing, it 
follows that the published statement of assets and liabilities of 
the War Shipping Administration as at June 30, 1943, was correct 
with respect to the acquisition and sale of the steamship President 
Madison to the United States Navy Department and that, there¬ 
fore, the Comptroller General’s adjustment of $1,200,000 is 
erroneous.” 

s The disbursement voucher for adjustments between appropriations and/or funds (Form 1080) No. 2234 
was certified for payment on June 25. 1943 (fiscal 1943), but apparently was not paid by the chief disbursing 
officer until July 5, 1943 (fiscal 1944). 



42 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


88. Comment and opinion: 

The reply has been reviewed and, so far as can be determined, the 
statements made therein are correct. Accordingly, it is considered 
that the Comptroller General was in error in effecting the subject 
adjustment. 

WAR SHIPPING ADMINISTRATION 

“6. Erroneous charges to the reserve for war-risk insurance, 
$4,983,394, and vessels lost in operation, $1,284,706, which per¬ 
tain to the steamship Wakefield (ex-Manhattan ). These amounts 
are recoverable from the Navy Department under agreements in 
effect at June 30, 1943.” 

89. Excerpts from reply: 

The reply sets forth the details with respect to the subject 
adjustment and states that “since these documents clearly indi¬ 
cate that the Navy Department was liable only for the residual 
value of the hull, it follows that the Comptroller General’s adjust¬ 
ment, which increased the accounts receivable against the Navy 
to a total of $10,000,000 was erroneous, irrespective of the terms 
of the subcbarter. We maintain, therefore, that our treatment 
of this transaction in the June 30, 1943, statement of assets and 
liabilities of the War Shipping Administration was correct in that 
the receivable of $3,731,900, set up against the Navy for the 
residual value of the hull, was in accordance with the referred to 
letter of January 4, 1944, from the budget officer to the Chief, 
Bureau of Ships, and that the charge of $4,983,394 against the 
war-risk-insurance reserve was in accordance with recommenda¬ 
tion 2 of referred to Administrator’s action of October 9, 1942.” 

90. Comments and opinion: 

The facts in this case are apparently as follows: (a) The War 
Shipping Administration chartered the subject vessel from the owner 
and agreed to assume all insurance risks; (6) the vessel was not 
insured by the War Shipping Administration against war risk or marine 
perils; (c) the Navy Department subchartered the vessel from the 
War Shipping Administration and assumed all liabilities for possible 
loss of the vessels; (d) the subject vessel was a constructive total loss 
while in the service of the Navy; (e) the Bureau of the Budget ruled 
“that funds will not be made available to the Navy for this reimburse¬ 
ment; but that the Navy will be authorized to take over the vessel 
where is, as is, and to pay the War Shipping Administration the 
amount of the residual value”; and (/), the War Shipping Administra¬ 
tion in its 1943 financial statement charged $4,983,394 of the loss to the 
war risk insurance reserve. 

91. Although the War Shipping Administration charge of $4,983,394 
against the war risk insurance reserve appears improper (since the 
Navy assumed all risks and since the vessel was not insured by the 
War Shipping Administration against war risk or marine perils), it is 
considered that the proper treatment of the subject item is dependent 
upon a legal decision as to whether or not the afore-mentioned ruling 
of the Bureau of the Budget supersedes the bareboat subcharter 
agreement (contract MCc-1671) with the Navy. 


ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 43 

92. At the date of preparation of the June 30, 1943, War Shipping 
Administration balance sheet the situation was apparently as follows: 
(a) The Navy had admitted its obligation to pay the $10,000,000; 
however (6), the Bureau of the Budget had declined to make funds 
available to the Navy for making the full $10,000,000 payment to the 
War Shipping Administration but, instead, had authorized only the 
payment of an amount equivalent to the residual value of the hull 
(approximately $4,000,000). In the absence of a legal opinion, it is 
considered that possibly the proper treatment would have been to set 
up an accounts receivable of $10,000,000 with an offsetting reserve of 
approximately $6,000,000. 

WAR SHIPPING ADMINISTRATION 

“7. Erroneous payments for charter hire aggregated more than 
$844,000.” 

93. Reply: 

In the reply the War Shipping Administration presents detailed 
information concerning the subject adjustment but apparently 
does not contest the corrections made by the Comptroller Gen¬ 
eral. It is noted in the reply, however, that the charter hire 
applicable to M/S J. H. Senior (Panama Transport Co.) in the 
amount of $10,491.37 is stated to represent “an overaccrual of 
charter hire rather than an overpayment of charter hire.” 

94. Comments and opinion: 

Although small in amount, the charter hire with respect to the 
M/S J. H. Senior was reviewed in order to determine the accounting 
treatment given it by the War Shipping Administration and in order 
to determine whether or not an overpayment was involved. On its 
June 30, 1943, balance sheet the War Shipping Administration 
included $199,800 in accounts payable to cover charter hire on this 
vessel. The amount was apparently arrived at as follows: 


Charter hire for the year ended June 30, 1943, was estimated at_$797, 454. 43 

The preclosing trial balance as of June 30, 1943, of account 705.1 
(charter hire expense) indicated that payments had actually been 
made in the amount of_ 597, 654. 43 


War Shipping Administration accrual (BSJV No. 4)_ 199, 800. 00 


95. In the foregoing calculation proper consideration was not given 
to the following facts: 

(a) Voucher No. NY-43-21345 in the amount of $66,006, 
covering charter hire for the month of April 1943, had been paid 
and debited to account 439 (audited vouchers payable). (A 
review of the Comptroller General's audit working papers indi¬ 
cated that charter hire in the amount of $3,875,056.79 was 
debited to this account.) 

(< b ) Voucher No. 43-23539 in the amount of $66,600, covering 
charter hire for the month of May 1943, had been paid and 
debited to account 1,000 (undistributed expenditures). (Ac¬ 
count 1,000 was opened in May 1943 and by June 30, 1943, 
along with other items, charter-hire expense in the amount of 
$21,859,845.01 had been charged to it.) 

(c) There was off-hire applicable to this vessel in the amount 
of $77,091.37. 






44 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


96. Had the facts set forth in the foregoing paragraph been taken 
into consideration by the War Shipping Administration, the calcula¬ 
tion of the amount payable or receivable with respect to charter hire 
on this vessel would have been correctly made as follows: 

Estimated amount payable as in par. 94_$797,* 454. 43 

Less: Off-hire as in par. 95 (c)_ 77, 091. 37 

Adjusted total amount payable for year_$720, 363. 06 

Amounts paid during year: 

Charged to charter hire expense as in par. 94_$597, 654. 43 

Charged to audited vouchers payable as in par. 

95 (a)___ 66, 600. 00 

Charged to undistributed expenditures as in , 

par. 95 ( b )_ 66, 600. 00 

Total payments for the year_ 730, 854. 43 

Actual overpayment of charter hire on M/S J. H. Senior as 
at June 30, 1943_ 10, 491. 37 

97. A review of the Comptroller GeneraPs audit working papers 
indicates that oversights of this nature by the War Shipping Admin¬ 
istration resulted in the overaccrual of $46,104,206.62 in charter hire 
expense on some vessels, and the underaccrual of $23,089,060.75 on 
others (a net overaccrual of $23,015,145.87). Accordingly, both ac¬ 
counts payable and charter hire expense were overstated by approxi¬ 
mately $23,000,000. 

98. It is noted that the War Shipping Administration reply in one 
place states that: “Since off-hire, as referred to above, is based upon 
occurrences not immediately determinable, we do not consider these 
alleged overpayments erroneous.” With representatives in all princi¬ 
pal ports of the world, it would appear that such information was 
available to these representatives even though it may not have been 
promptly available to accounting personnel. The inadequacy of the 
procedures with respect to the prompt reporting of accounting infor¬ 
mation has been commented upon at length elsewhere in this pre¬ 
liminary report. 

WAR SHIPPING ADMINISTRATION 

“8. Failure to record completely the recapture of excess profits 
on repair and conversion contracts resulting in an understatement 
of accounts receivable $1,110,749.98, and overstatement of de¬ 
ferred credits, $1,477,258.02, and deficit, $2,588,008.” 

99. Excerpts from reply: 

The reply concurs in the correctness of the Comptroller Gen¬ 
erals adjustments. Reference is made to a letter dated June 24, 
1942 from the Bethlehem Steel Co. which contains the following 
statement: “Accordingly, at a conference held in your office on 
June 12, 1942, this company (is) prepared to refund the amount 
of $2,588,008 referred to above.” Further reference is made to 
an extract from a letter dated June 30, 1942, from the Director 
of Finance, United States Maritime Commission to the Bethlehem 
Steel Co. in which it is stated: “The plan as set forth in your 
letter is acceptable, and the cooperation of your company in 
making this voluntary adjustment is appreciated.” 












ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 45 

100. Comments and opinion: 

So far as can be determined this receivable was not recorded in the 
books of the War Shipping Administration. During the fiscal year 
ended June 30, 1943, amounts totaling $1,477,258.02 were collected 
by making deductions from other amounts payable to the Bethlehem 
Steel Co. by the War Shipping Administration. The sum so deducted 
was shown on the June 30, 1943, statements as “Undistributed re¬ 
funds” under the general caption of deferred credits. It is noted that 
a year after the $2,588,008 receivable had been approved by the 
Director of Finance, the amount had not yet been set up as an account 
receivable on the books. Furthermore, as stated above, the amount 
which had been actually collected as of June 30, 1943, was incorrectly 
presented in the financial statements. The adjustments made by the 
Comptroller General were necessary in order to present the facts on 
the statements correctly. 

101. Exhibit 5 sets forth a detailed procedure which was established 
for the purpose of accounting for the payments made by the Bethlehem 
Steel Co. through voucher deductions. The procedure appears to be 
much more complicated than is warranted by the relatively simple 
bookkeeping problem involved. The matter was discussed with those 
who prepared the procedures, and the discussion indicated a lack of 
comprehension of the fact that an accounts receivable should have 
been set up on the books and that the problem of crediting appropria¬ 
tions for the collections as made could have been handled easily on 
the face of public vouchers (Form 1034). 

WAR SHIPPING ADMINISTRATION 

“9. Warshipopencargo insurance premiums aggregating $617,- 
502.38 were unrecorded at June 30, 1943.” 

102. Reply: 

“Our investigation of this adjustment disclosed the fact that 
the entire amount of $617,502.38 represented collections of War¬ 
shipopencargo insurance premiums applicable to the fiscal year 
ended June 30, 1943, which were reported by Albert Will cox & 
Co., Inc., clearing agent of the War Shipping Administration, 
after June 30, 1943. This fact is clearly established by the lan¬ 
guage of the Comptroller General's adjustment to accounts 
receivable, which reads: 

“ ‘Additional Warshipopencargo premiums collected in fiscal 
year 1944 properly applicable to fiscal year 1943.' 

“Inasmuch as we applied these premium collections, in our 
1944 accounts, to the fiscal year 1943, we have no objection to 
the Comptroller General's adjustment, although we do not con¬ 
sider this item an error of omission or commission under the 
reporting arrangements made with Albert Willcox & Co., Inc., 
under contract No. WSA-3841, hereinbefore referred to under T.” 

103. Comments and opinion: 

The representatives of the Comptroller General apparently arrived 
at the amount of the adjustment by reviewing the reports rendered 
by Albert Willcox & Co., Inc., available at the time of the audit, and 
tabulating all premium receipts appearing thereon which applied to 


46 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


the fiscal year ended June 30, 1943. 9 Although it is recognized that 
the War Shipping Administration may not have been able to record 
for statement purposes the entire $617,502.38 adjusted by the Comp¬ 
troller General (because a few of the reports from Albert Willcox & 
Co., Inc., may have been received subsequent to the time of prepara¬ 
tion of the War Shipping Administration statements but prior to the 
time of the audit), it is considered that a major portion (probably 
over 90 percent) could have been included properly in the June 30, 

1943, War Shipping Administration statements if those charged with 

the preparation of the statements had made use of the available 
information. , 

104. From informal discussions with representatives of the Comp¬ 
troller General it is understood that although substantial amounts of 
additional premiums (similar to the foregoing) were recognized by the 
War Shipping Administration in the preparation of the 1943 state¬ 
ments, items of this nature were apparently completely omitted in 
preparing the 1944 statements. This is considered to indicate care¬ 
lessness in statement preparation. 

WAR SHIPPING ADMINISTRATION 

“10. Insurance claim payments by agents, $3,953,533.30, were 
applied incorrectly as a reduction of the reserve war-risk insur¬ 
ance rather than as contingent receivables.” 

105. Excerpts from reply: 

The War Shipping Administration admits this error in its 
statement: “Our investigation of this item disclosed the fact that 
all of the amount involved was reflected in our agents’ trial 
balances, in account 361, claims pending, as at June 30, 1943, and 
that, as stated in the Comptroller General’s report, this sum was 
applied incorrectly as reduction of the reserve for war-risk insur¬ 
ance rather than as contingent receivables.” 

106. Comments and opinion: 

Balance sheet journal voucher No. WSA-20, prepared March 15, 

1944, includes the following adjustment: 

Reserve for war-risk insurance—Account 893, 

war-risk insurance claim payments_$3, 953, 533. 30 

Clearance account 094, agency operation service 

agreements_1_$3, 953, 533. 30 

To bring into the statement of assets and liabilities ledger accounts on 
books of general agents as shown by analysis of general agents’ trial balances 
as of June 30, 1943. 

(The debit to 893 was later changed in pencil to 363—War-risk 
insurance claims (pending).) 

In effect, the debit above should have been to accounts receivable 
from hull underwriters, protection and indemnity underwriters and 
other sources, as this represented claims actually paid by general 
agents and recoverable from these sources. 

107. Since the general agents did not write off the claims pending 
on their books, it would appear that the interests of the Government 

9 This procedure was reviewed and it was noted, for example, that the “Summary of additional closing 
reports for the month of June 1943”—report No. 82, sheet No. 3—transmitted under date of October 16,1943, 
to the Division of Wartime Insurance, Washington, D. C. (copy to Finance Division), shows premium 
receipts in the amount of $138,127.99. This amount is included in the amount of the subject adjustment. 





ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 47 


were protected insofar as the agents’ records were concerned blit, 
by the above entry, the War Shipping Administration lost control of 
over $3,000,000 of such receivables for balance sheet purposes. 
Accounts receivable and the reserve for war-risk insurance were both 
understated by this amount on the financial statements as of June 
30, 1943. 

WAR SHIPPING ADMINISTRATION 

“11. Failure to record more than $350,000,000 revenues 
receivable at June 30, 1943, for the transportation of lend-lease 
cargoes.” 

108. Reply: 

“As you are aware, the original arrangements between the 
War Shipping Administration and the Lend-Lease Adminis¬ 
tration contemplated that billings of the War Shipping Adminis¬ 
tration for the use of vessels allocated in whole or in part to the 
carriage of lend-lease cargoes would be rendered on a ‘cost basis 
to be determined.’ The impracticability of that arrangement 
resulted not only in delayed billings but also precluded the use 
of lend-lease funds allocated to the War Shipping Administration 
for the purpose of defraying such costs. Accordingly, the original 
method of billing was abandoned in favor of a procedure which 
would permit the War Shipping Administration to bill and collect, 
from lend lease funds, on a ‘freight rate basis’ rather than on a 
‘cost basis.’ The issuance of fiscal regulations No. 12 by the 
War Shipping Administration, under date of June 25, 1943, 
established the new billing procedure; and since, under the new 
arrangement, agents were required to retroactively ‘rate’ all 
manifests covering lend-lease cargoes carried on War Shipping 
Administration vessels, it follows that it would have been physi¬ 
cally impossible for them to accrue such revenues on the new 
basis prior to the required time for the submission of their trial 
balances for the fiscal year ended June 30, 1943. In addition, it 
is pointed out that all the rates had not been agreed upon and 
placed in the hands of agents as at June 30, 1943.” 

109. Comments: 

In its reply to the Comptroller General’s report the War Shipping 
Administration does not specifically disagree with the adjustments 
made by the Comptroller General, "but seems to justify the omission 
of these receivables on the grounds that a workable billing basis for 
freight on lend-lease cargoes was not established until June 25, 1943 
(5 days before the close of the fiscal period), and “that all the rates 
had not been agreed upon and placed in the hands of agents as at 
June 30, 1943.” 

110. The figure used by the Comptroller General was apparently 
an estimate based on such information as was available at the time 
of the audit. Since the statements of the War Shipping Administra¬ 
tion were not forwarded until April 15, 1944, it would appear that 
the War Shipping Administration had ample time in which to make 
some estimate of the amount receivable for statement purposes had 
anyone in the Administration taken the initiative to do so. 

111. The War Shipping Administration’s schedule L-l, supporting 
their June 30, 1943, statements, shows under the defense-aid program 


48 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 

an account payable in the amount of $527,035,762.01 for “Amounts 
due for rental and charter of vessels for foreign governments/ 7 It 
would appear that the bulk of this amount probably represented esti¬ 
mates of the amounts due to the War Shipping Administration. 
Since the liability under “Defense aid 77 as of June 30, 1943, was set 
up in the statements, it would appear that the asset under the War 
Shipping Administration’s regular program could also have been set 
up. Therefore, the argument presented for not having set up this 
asset does not seem to be valid. 

WAR SHIPPING ADMINISTRATION 

“12. Erroneous year-end adjusting entries aggregating 

$12,770,576.03, resulted in an overstatement of accounts re¬ 
ceivable and Navy working-fund reserves. 77 

“13. Erroneous year-end adjusting entries aggregating 

$530,271.92, resulted in an overstatement of accounts receivable 
and the working-fund reserves of the War Department. 77 

“14. Erroneous year-end adjusting entries aggregating 

$10,731,335.74, resulted in an overstatement of accounts re¬ 
ceivable and accounts payable. 77 

112. Summary of reply: 

The reply admits that the adjustments made by the Comp¬ 
troller General are correct. 

113. Comment: 

The foregoing errors resulted from errors in balance sheet journal 
vouchers. A careful preparation of such vouchers or an adequate 
review after the vouchers were prepared would have eliminated the 
necessity for the subject adjustments. 

WAR SHIPPING ADMINISTRATION 

“15. Erroneous year-end adjusting entry of $11,487,701.35 
involving repairs to the steamship George Washington included 
in accounts receivable. 77 

114. Excerpts from reply: 

In its reply to the Comptroller General’s report the War 
Shipping Administration states: “Since, however, the Director, 
Bureau of the Budget, in a letter dated October 27, 1942, approved 
absorption, by the War Shipping Administration, of the cost of 
the repairs in question, it follows that the Comptroller General’s 
adjustment, which canceled the receivable against the War 
Department, is correct. 77 

115. Comments: 

Attention is called to the fact that the above-referenced letter from 
the Director, Bureau of the Budget, was dated in 1942; whereas the 
incorrect debit to accounts receivable was posted to account 165.20, 
accounts receivable—Suspense, War Department, steamship George 
Washington (MCc-1642, Supl. lll) from War Shipping Administra¬ 
tion post closing miscellaneous journal voucher No. 43-4460, dated 
August 31, 1943. The actual posting was made along with the Sep¬ 
tember work, date of posting unknown. It should be noted that the 


ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 49 

journal voucher setting up the receivable was not prepared until 
approximately 10 months after notification from the Bureau of the 
Budget that the item was not a receivable. 

116. The mechanics of handling this type of item for statement 
purposes is illustrative of the roundabout and involved procedure 
followed. The balance on the books as of June 30, 1943, for accounts 
receivable, United States War Department, was placed on a work 
sheet as the starting point in the development of balance sheet 
figures. This item, of course, not having been posted until consider¬ 
ably later, was not included in the starting figure. Some time after 
June 30, 1943, the accounts were examined for items posted subse¬ 
quent to the June 30, 1943, postings, but applicable to the June 30, 
1943, statements. The items so found, including the subject item, 
were summarized in balance sheet journal voucher form and then 
applied to the work sheet figures used as a starting point. (Approxi¬ 
mately 2,000 of such items are included on BSJV No. 1.) The 
actual date of preparation of balance sheet journal voucher No. 1 
is not indicated and the voucher is prepared in pencil. 

117. Balance sheet journal voucher No. 29, prepared December 8, 
1943, debited account 331, vessels and floating equipment, steamship 
George Washington, and credited clearance account 806, vessel repairs 
and betterments—steamship George Washington, in the amount of 
$11,487,701.35, the explanation being “To capitalize, for balance 
sheet purposes, repairs and conversion costs on the above vessel. 
Above costs to be depreciated over estimated life of 5 years, per in¬ 
structions of Mr. J. M. Quinn, Ncvember 12, 1943.” Attention is 
again called to the fact that balance sheet journal vouchers were not 
posted to the books, but were used merely for statement purposes. 
It will also be observed that, at this point, for balance sheet purposes 
the item was included as an asset in two places (1) as an accounts 
receivable and (2) as vessels and floating equipment. It was this 
situation which the Comptroller General adjusted. 

118. Journal voucher No. 44-6-2046, prepared October 3, 1944, 
debited account No. 331-13 (floating equipment, vessels) and credited 
account 165.20 (accounts receivable, suspense, United States War 
Department—Miscellaneous, U. S. A. T. George Washington) in the 
amount of $11,606,571.36. This journal voucher was made as of 
June 1944 and was apparently posted on October 10, 1944. Attention 
is called to the fact that this correction is dated approximately 2 years 
after the letter from the Bureau of the Budget. 

WAR SHIPPING ADMINISTRATION 

“16. Erroneous year-end adjustment resulting in an over¬ 
statement of accounts receivable by $1,202,000.” 

119. Summary of reply: 

In its reply to the Comptroller General’s report the War 
Shipping Administration concurs in the adjustment made and 
states that the Comptroller General’s adjustment is correct. 

120. Comments: 

The $1,202,000 represented billings to the War Department for 
advances to cover purchase of three vessels and were invoiced (invoices 
43-24168, 24169, and 24170) in 1943 and were unpaid at June 30, 1943. 


* 

50 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 

It is to be noted that these invoices were actually recorded on the 
books. Balance sheet journal voucher No. 42 (prepared for balance- 
sheet purposes and not recorded on the books) did not take into 
consideration the foregoing invoices which had been actually recorded, 
thus duplicating the amount of the three invoices in the total of 
accounts receivable as shown on the published statements of the War 
Shipping Administration. Again, it appears that adequate review of 
the balance sheet journal vouchers would have prevented the error. 

WAR SHIPPING ADMINISTRATION 

“17. Erroneous year-end adjustment of $139,316.63 resulting 
in an overstatement of accounts receivable and unearned 
premiums.” 

121. Reply: 

“Our investigation of this adjustment reveals the fact that the 
amounts involved were overstated in the published statement of 
assets and liabilities of the War Shipping Administration as at 
June 30, 1943, and, accordingly, the Comptroller General's ad¬ 
justment is correct.” 

122. Comments: 

Since the War Shipping Administration admits that the Comp¬ 
troller General’s adjustment is correct, only a brief description of 
this bookkeeping error is given herewith. War Shipping Adminis¬ 
tration invoices WSA-43-26759, 26760, and 26761 in the amount of 
$80,000 each were issued to the Norwegian Shipping and Trade Mis¬ 
sion on May 14, 1943. These were all posted as debits to account 
155.2 (S. S. Fridtjof Nansen), insurance accounts receivable; and 
credited to account 562, hull insurance premiums unearned. 

123. On June 5, 1943, War Shipping Administration credit mem¬ 
oranda Nos. WSA-43-28044, 28046, and 28048 were issued to cancel 
the above invoices. These were posted as a debit to account 562, 
hull insurance premiums unearned; but the credits were posted to 
account 155.2 ($80,000 to S. S. General Fliescher , $80,000 to S. S. 
General Ruge, and $80,000 to S. S. Roald Amundsen), insurance . 
accounts receivable. 

124. The above entries, combined with other entries, resulted in 
year-end ledger accounts as follows: 


S. S. General Fliescher _____;_$46, 191. 78 

S. S. General Ruge _!_ 44, 657. 53 

S. S. Roald'Amundsen _ 44, 657. 53 


Total--- 135,506.84 


125. Accounts distribution journal voucher No. 37, page 4, debited 
account 155 (accounts receivable) and credited account 562 (hull in¬ 
surance premiums unearned) for $135,506.84 plus a few other items 
representing cash remittances credited to the wrong subsidiary ledger 
accounts. The General Accounting Office adjustment corrected the 
errors involved on accounts distribution journal voucher No. 37. The 
War Shipping Administration corrected the erroneous postings to the 
subsidiary ledgers in February 1944. 

126. This type of error, which isadmitted by the War Shipping 
Administration, indicates a poor control by administrative officials 
over year-end adjustments that are prepared for statement purposes. 








ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 51 

The year-end adjustments are prepared in various units of the War 
Shipping Administration, and, as indicated elsewhere in the report, 
many of them appear not to have been reviewed by responsible officials 
so as to remove duplications and other types of errors. 

WAR SHIPPING ADMINISTRATION 

“18. Repairs under insurance claims improperly recorded as 
accounts receivable totaling $223,453.64.” 

127. Reply: 

“Our investigation of this item developed the fact that the 
adjustment appearing in the report of the Comptroller General 
is correct. For your information, however, a proper adjustment 
was made by our accounting staff prior to receipt of the Comp¬ 
troller General’s report.” 

128. Comment: 

So far as can be determined the same error was repeated in pre¬ 
paring the June 30, 1944, financial statements of the War Shipping 
Administration. 

WAR SHIPPING ADMINISTRATION 

“19. Erroneous year-end adjustment indicating an account 
receivable of $100,000, which was actually collected prior to 
June 30, 1943.” 

129. Reply: 

“Our investigation of this item reveals that the Comptroller 
General’s adjusting entry is correct.” 

130. Comments: 

The bookkeeping with respect to subject item was as follows: 

(a) Remittance manifest No. WSA-43-1468 dated May 13, 1943, 


was recorded as follows: 

101. Cash (11X0520)_ $50,000 

165.3. Accounts receivable—Tampa Shipbuilding Co., Inc. 

(to credit accounts receivable—hilled)_$50, 000 

(6) Remittance manifest No. WSA-43-1615, dated June 8, 1943, 
was recorded as follows: 

101. Cash (11X0520)_$50,000 

165.20. Accounts receivable—Suspense (unbilled) TSB_ 50, 000 

165.3. Accounts receivable—TSB (billed)_$50, 000 

690. Miscellaneous income_ 50, 000 


To record check No. 26388, dated June 2, 1943, from the Tampa 
Shipbuilding Co., Inc., in the amount of $50,000, representing partial 
payment of recapture profits on master contracts DA-MCc-609 and 
MCc-2635 for the calendar years 1941 and 1942. 

(c) The total amount involved amounted to $241,316.96. Since 
$100,000 had been collected, the War Shipping Administration issued 
invoice No. WSA44-7 (a fiscal year 1944 invoice number) in the 
amount of $141,316.96, which was recorded as follows: 


165.3. Accounts receivable—Tampa SB (billed)_$241,316.96 

165.20. Accounts receivable, suspense_$191,316.96 

690. Miscellaneous income, TSB_ 50, 000. 00 












52 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


The face of the invoice had this notation: 

Amount of this invoice_ $241, 316. 96 

Less payments made: 

May 1943_$50, 000 

June 1943_ 50, 000 

- 100,000.00 

Balance due_ 141, 316. 96 

It also indicated that account 165.20 was “to be cleared as remittance 
manifests are received.” It is to be noted that invoice No. WSA44-7 
was issued and recorded as a fiscal year 1944 transaction. 

(d) In order to place this item on the statements as of June 30, 1943, 
balance sheet journal voucher No. 10, prepared December 23, 1943, 
was set up on the work sheets as follows: 

165.3. Accounts receivable (billed)_$241, 316. 96 

690. Miscellaneous income_$241; 316. 96 

(e) For balance sheet purposes only, accounts distribution journal 
voucher No. 39 was prepared with the following debits and credits 
affecting this item: 

165.3. Accounts receivable (billed)_ $50, 000 

690. Miscellaneous income_$50, 000 


To transfer receivable items from various accounts to accounts receivable 
for balance sheet purposes. 

(/) For balance sheet purposes (ignoring the 1944 invoice WSA44-7 
posting) these accounts appeared as follows: 


101. Cash_$100,000.00 

165.3. Accounts receivable (billed)_ 191,316.96 

165.20. Accounts receivable (unbilled)_ 50, 000. 00 


690. Miscellaneous income_$341, 316. 96 


131. The Comptroller General corrected the statements by making- 
the following adjustment: 

690. Miscellaneous income_ $100, 000 

Accounts receivable_ $100, 000 

132. It is interesting to note, also, that the information on the books 
after posting invoice No. WSA44-7 during July 1943, was as follows: 

101. Cash_ $100, 000. 00 

165.3. Accounts receivable, TSB (billed)_ 141, 316. 96 

165.20. Accounts receivable (unbilled)_$141, 316. 96 

690. Miscellaneous income (1943)__ 50, 000. 00 

690. Miscellaneous income (1944)_ 50, 000. 00 

133. It appears that one attempt to correct this situation on the 
books was made by journal voucher No. JV-44-5-451, posted on 
July 13, 1944: 


165.20. Accounts receivable, TSB (unbilled)_$141, 316. 96 

564. Miscellaneous deferred credits, TSB_ $141, 316. 96 


“To transfer to account 564, miscellaneous deferred credits, amounts 
originally charged to account 165.20 on invoices * * * and 

WSA44-7.” 

134. Because of lack of time, any further attempts to trace the 
subject item were not made. However, an examination of the “paid 
files” of the War Shipping Administration indicated that notations 
of payment were listed as follows: “7/13/43, $50,000; 8/2/43, $50,000 ; 



























ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 53 


and 8/30/43, $36,365.35; or a total of $136,265.35.” The notation 
also indicated that the “balance is being handled by Ramer’s office.” 
An interoffice memorandum from F. F. Barnett to W. A. Ramer on 
September 1 , 1943, indicated that the balance of $5,051.61 would be 
canceled. It thus appears that no money was lost to the Government' 
on this series of transactions; the bookkeeping, however, apparently 
could have been greatly simplified. 

WAR SHIPPING ADMINISTRATION 

“20. Credit memorandums totaling $598,492.65, processed in 
.1944 covering insurance premium reductions applicable to insur¬ 
ance accounts receivable shown as outstanding at June 30, 1943.” 

135. Summary of reply: 

“Since the amounts of these premium reductions were appli¬ 
cable to open receivables as at June 30, 1943, we have no objec¬ 
tion to the Comptroller General’s adjustment, even though it is 
based upon our fiscal year 1944 accountings.” 

136. Comments: 

The amount of the subject adjustment was apparently arrived at 
by analyzing the noncash credits to accounts receivable recorded 
subsequent to June 30, 1943, but applicable to accounts receivable 
reflected in the War Shipping Administration’s financial statements 
as of June 30, 1943. 

137. In general, the procedure followed by the War Shipping Ad¬ 
ministration in handling the accounting for War Risk insurance pre¬ 
mium collections in fiscal year 1943 was as follows: At the time the 
policy was issued the total premium receivable was charged to accounts 
receivable, and credited to insurance premiums unearned (closed 
quarterly to reserve for war-risk insurance). At the time the pre¬ 
mium was collected and deposited the cash account (available funds 
on deposit, United States Treasury) was debited and the accounts 
receivable credited. 

138. However, in the actual operation of the foregoing procedure it 
appears that many checks covering premiums were received and held 
undeposited. Many of the undeposited checks were later returned 
to the assured in exchange for checks of lesser amount—such smaller 
amount having been accepted in anticipation of an endorsement to be 
subsequently written to the original policy. Such substituted checks 
were deposited with the result that the accounts receivable were 
credited with smaller amounts than the original debits. In many 
instances, at the time of deposit there were no written endorsements in 
support of these discrepancies. At a later date the endorsements were 
prepared and used as bases for credit memoranda to correct the 
accounts receivable. In most instances an unsigned copy of the 
endorsement was used as authority for the credit memorandum. 
(See exhibit 6.) To illustrate, policies totaling over $280,000 were 
written in April 1942, and the endorsements thereto were not dated 
until October 14, 1944. 10 

i° This information was based in part on “Recapitulation of various policies and binders under review by 
GAO showing amount of premium adjustment through accounting records as of June 30,1043,” prepared by 
the Policy Issuing and Statistical Section of War Shipping Administration on January 10, 1946, with accom¬ 
panying letter from L. W. Niggeman, Acting Director of Wartime Insurance. 



54 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


WAR SHIPPING ADMINISTRATION 

“21. Erroneous inclusion of $127,454,148 in accounts receivable,, 
which was actually expenses of voyages in progress.” 

139. Reply: 

“Our investigation of this item disclosed the fact that scliedulo 
A3-2, war risk accounts receivable, forming a part of the published 
statement of assets and liabilities of the War Shipping Adminis¬ 
tration as at June 30, 1943, reflected accounts receivable of 
$127,454,148 against the War Shipping Administration revolving 
fund. These receivables, which were recorded in the accounts 
covering war risk insurance fund activities, were covered by in¬ 
voices Nos. WSA-44-322 to 327, inclusive, and invoice No. 
WSA-43-29006. The 1944 invoices covering prior periods were 
taken into consideration for balance-sheet purposes in the prepara¬ 
tion of the afore-mentioned statement of assets and liabilities. 

“The records further indicate that such invoices were liqui¬ 
dated in August and September 1943 by the transfer of funds 
from the War Shipping Administration revolving fund to the war- 
risk insurance fund through the medium of standard forms 1080 
and the payments recorded on WSA MRM-44-155 and WSA 
MRM-44-86. It will thus be seen that the receivable as in¬ 
cluded in the published statement of assets and liabilities of the 
"War Shipping Administration as at June 30, 1943, was correct 
from the standpoint of the accounts covering the marine and war- 
risk insurance fund. However, this transaction was not accrued 
as at June 30, 1943, in the accounts of the War Shipping Admin- 
stration by an offsetting liability, the contra of which would have 
been a charge to ‘Voyage expense.’ Such charge was effected 
upon payment of the referred to forms 1080. Accordingly, we 
believe that the Comptroller General’s adjustment to the June 
30 published statement of assets and liabilities of the War Ship¬ 
ping Administration should have been a debit to ‘Voyages-in- 
progress’ and a credit to ‘Accounts payable, marine and war- 
risk insurance fund,’ on the records of the War Shipping Admin¬ 
istration without disturbing the referred to accounts receivable 
of $127,454,148 as reflected in the war-risk insurance fund 
accounts.” 

140. Comments and opinion: 

The reply of the War Shipping Administration indicates a confu¬ 
sion between fund accounting, as such, and consolidated statements 
covering such funds. In effects, the statement prepared by the V r ar 
Shipping Administration is a consolidated statement. The informa¬ 
tion underlying the subject adjustment was brought into the financial 
statements of the War Shipping Administration by balance-sheet 
journal vouchers in the following manner: 

War-risk insurance fund: 

Accounts receivable—WSA revolving fund_$127, 454, 148 

War-risk insurance fund reserve__$127, 454, 148 

The War Shipping Administration failed to make the following 
entry which also should have been made simultaneously: 



ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 55 
WSA revolving fund: 

Voyages in progress (1943 expense)_$127, 454, 148 

Accounts payable, war-risk insurance fund_$127, 454, 148 

Ill addition the interfund receivables and payables should have 
been eliminated for consolidated statement purposes as follows: 

Accounts payable, war-risk insurance fund_$127, 454, 148 

Accounts receivable, WSA revolving fund_ $127, 454, 148 

141. Since the War Shipping Administration had made only the 
first of the three foregoing entries, the Comptroller General (for pur¬ 
poses of the audited statement) debited voyages in progress and cred¬ 
ited accounts receivable. This adjustment appears to be appropriate 
under the circumstances. 

142. It is considered significant that this item was handled on the 
War Shipping Administration balance sheet as of June 30, 1944, in 
the manner suggested by the Comptroller General’s adjusting entry; 
a quick review of the item indicated that it was not handled in the 
manner suggested by the War Shipping Administration reply to the 
1943 audit report. 

WAR SHIPPING ADMINISTRATION 

“22. Erroneous year-end adjustment of $378,193.96 resulting 
in an overstatement of accounts receivable.” 

143. Summary of reply: 

The reply acknowledges the correctness of the Comptroller General’s 
adjustment. 

144. Comment: 

As stated in the reply this adjustment was necessary because of 
error in the preparation of balance-sheet journal vouchers. It is con¬ 
sidered that this type of error has been sufficiently commented upon. 

WAR SHIPPING ADMINISTRATION 

“23. Repairs and betterments to vessels prior to use of approxi¬ 
mately $32,000,000 incorrectly charged to expense.” 

145. Reply: 

“The above adjustment involves the cost of installation of 
betterments, repairs, national defense features, degaussing, and 
conversions on approximately 35 vessels. These installations 
were performed under master repair contracts; in most instances 
progress payments were made thereunder. 

“We do not agree with the Comptroller General’s adjustment 
inasmuch as it was an impossibility to correctly segregate the 
various types of costs incurred under the repair contracts as at 
June 30, 1943; nor do we subscribe to the theory of capitalizing 
costs covering national defense features, degaussing, conversions 
and certain initial repairs performed solely for war use. While 
some of the costs undoubtedly cover capitalizable betterments, 
we believe that our statement of assets and liabilities would have 
been incorrect to a far greater degree had we capitalized the entire 
$32,267,145.45 as did the Comptroller General’s auditors. 

“It is the general policy of the War Shipping Administration 
and the Maritime Commission to capitalize vessel repair costs 






56 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 

only in those instances where the revenue earning capacity of 
the vessel for normal peacetime use is enhanced.’’ 

146. Comments and opinion: 

A review of the audit working papers of the Comptroller General 
indicated that the cost of national defense features and degaussing 
was not included in the adjustment made by the Comptroller General. 

147. Such review also indicated that the repairs covered by the 
subject adjustments were made to vessels which were either (1) in a 
damaged condition at the time of acquisition, (2) “laid up” when 
acquired, or (3) were acquired for a specific purpose requiring exten¬ 
sive changes before use. Apparently all vessels, but one, were over¬ 
age. According to generally accepted principles of accounting, the 
initial cost of placing an asset in a usable condition is properly 
capitalized as part of the cost. With respect to the last sentence 
quoted from the reply, see exhibit 10. 

148. With respect to the statement that “* * * it was an 

impossibility to correctly segregate the various types of cost incurred 
under the repair contracts as at June 30, 1943 * * *” it is signifi¬ 

cant that the information used by the Comptroller General was taken 
from the records of the War Shipping Administration and practically 
all of the information was available at the time of preparation of the 
June 30, 1943, statements. This is substantiated by the fact that 
according to representatives of the Comptroller General the informa¬ 
tion necessary for the subject adjustment was included in the financial 
statements under the repairs account. 

WAR SHIPPING ADMINISTRATION 

“24. Acquisition cost of vessels aggregating more than $16,- 
000,000 charged to deferred charges and prepaid expense.” 

149. Reply: 

“This sum of $16,789,686.55 represented the estimated acquisi¬ 
tion cost of 33 vessels requisitioned and which were on hand at 
June 30, 1943, to be paid for out of lend-lease funds. Actual 
just compensation was not determined, for the most part, until 
the fiscal years 1944 and 1945, during which time payments were 
made to the owners of the vessels from funds allotted by the 
Foreign Economic Administration. 

“The deferment of the estimated acquisition cost of the afore¬ 
mentioned vessels was in conformity with the policy adopted by 
the War Shipping Administration of deferring all lend-lease 
charges for the fiscal year 1943 until such time as specific instruc¬ 
tions were issued by the Foreign Economic Administration as to 
their treatment.” 

150. Comments and opinion: 

The War Shipping Administration originally recorded this item in 
expense account 810, “Purchases of vessels and other floating equip¬ 
ment.” In the published statement of assets and liabilities, however, 
the item was buried in the defense-aid program under “Deferred 
charges and prepaid expenses,” under the above-mentioned policy of 
“deferring all lend-lease charges for the fiscal year 1943 * * 

The Comptroller General transferred this item from expense account 


ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 57 

810 to the asset account 331, “Floating equipment, vessels.” The 
War Shipping Administration’s defense-aid program comparative 
balance sheets for June 30, 1944, and June 30, 1943, includes an 
amount of $20,237,525.39 under “Floating equipment, vessels” in the 
June 30, 1943, column; whereas under the defense-aid program on the 
1943 statements no amount was shown under this caption. This 
indicates that the War Shipping Administration apparently agreed 
with the Comptroller General at the time of preparation of the 1944 
comparative statements. 

151. The 33 vessels involved in this transaction were in the custody 
of a foreign government under lend-lease arrangements, but title 
remained in the United States. Until and unless titles to such vessels 
were transferred to the foreign government, their value appears to 
be an asset of the War Shipping Administration, defense-aid program. 
They were so shown in the Administration’s published statement for 
the defense-aid program as at June 30, 1944. This should be sufficient 
evidence to indicate that the Comptroller General was correct in 
making the subject adjustment on the 1943 statements. 

WAR SHIPPING ADMINISTRATION 

“25. Vessels lost at sea aggregating more than $13,000,000 still 
carried as an asset at June 30, 1943.” 

152. Reply: 

“An investigation of this adjustment reveals the fact that there 
were eight vessels involved therein, the book value of which 
aggregated $13,631,494.78. All of these vessels were lost prior 
to June 30, 1943. Of these lost vessels, one was reported to this 
office on June 22, 1943, one reported on July 10, 1943, and one 
reported on April 29, 1944, and, of the remaining five, no notifica¬ 
tion whatsoever was received prior to release of the published 
statement of assets and liabilities of the War Shipping Adminis¬ 
tration as at June 30, 1943. 

“We do not consider this item an error of omission or commis¬ 
sion since the then-existing security regulations did not permit 
the release of the names of vessels lost or sunk by enemy action 
or otherwise. As a matter of information, however, the book 
values of these lost vessels were appropriately adjusted prior to 
the receipt of the Comptroller General’s report.” 

153. Comments and opinion: 

The information which was the basis of the Comptroller General’s 
adjustment was apparently available in the operating divisions and 
in the Economics and Statistics Division substantially prior to the 
date of release of the June 30, 1943, financial statements. 

154. The statement that “the book values of these lost vessels were 
appropriately adjusted prior to the receipt of the Comptroller Gen¬ 
eral’s report” is correct as to seven of the vessels. As to the other 
vessel adjustments, attention is called to the fact that the Comptroller 
General’s report was received by the War Shipping Administration in 
January 1946, and to the fact that journal voucher 46-5-535, prepared 
June 21, 1946 (posted as of April 30, 1946), increased account 998.1, 
“Total losses, floating equipment, owned vessels” by $3,087,938.52 
through surplus adjustment account 090 for fiscal year 1943. 


58 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


WAR SHIPPING ADMINISTRATION 

“26. Failure to record depreciation on vessels in excess of 
$3,500,000.” 

155. Excerpts from reply: 

The War Shipping Administration concurs in and/or has no 
objection to depreciation on all vessels listed except on “various 
vessels purchased or requisitioned by War Shipping Administra¬ 
tion” (item g). This item “represented depreciation on certain 
repairs to vessels purchased or requisitioned by the War Shipping 
Administration. These repairs, aggregating $32,267,145.45, are 
treated under item 23 hereof. Since, in our comments under 
item 23, we declined to agree with the Comptroller General's 
contention that all of the items should be capitalized, it follows 
that we cannot concur in this depreciation adjustment.” Item 
(g) as set forth in the reply totals $1,460,055.95. 

156. Comments and opinion: 

A review of the Comptroller General's audit working papers indi¬ 
cates that item (g) covers not only depreciation on “certain repairs to 
vessels purchased or requisitioned” as indicated by the War Shipping 
Administration reply, but also covers depreciation on small craft not 
provided by the Administration as follows: 


Barralton _ 

$15,386.28 

Radio ___ 


$4, 473. 84 

Buttercup _ 

19, 254. 21 

Rescue _ 


35, 291. 20 

Edmund J. Moran _ 

20, 619. 42 

S. G. barges (Nos. 

2 to 9)_ 

14, 664. 51 

Gresham __ _ 

3, 550. 00 

Valley Forge __ 


28, 333. 22 

Gypsum Prince __ 

Humrick __ _ 

4, 584. 00 
10, 891. 40 

Winthrop _ 


660. 00 

Interstate Ho. 7 _ 

10, 172. 50 

Total _ 


192, 153. 30 

King Flash _ 

504. 00 

Depreciation on 

better- 

Lake Crystal __ 

4, 312. 00 

ments and/or 

repairs 


Lake Hemlock _ 

4, 874. 55 

made to vessels at time 


Lake Louise _ _ _ 

Pisces __ __ 

4, 166. 65 
1, 108. 31 

of acquisition 


1, 267, 902. 65 

Portsmouth __ 

Queen Flash _ _ 

8, 730. 76 
576. 45 

Total_ 


1, 460, 055. 95 


157. As stated in the foregoing paragraph 146, according to gen¬ 
erally accepted principles of accounting the initial cost of placing an 
asset in a usable condition is properly capitalized as part of the cost 
of such asset. Since the initial repairs, in our opinion, are a proper 
inclusion in cost it necessarily follows that such repair charges should 
be included in the bases for determining depreciation on the vessels. 
Accordingly, the adjustment made by the Comptroller General is 
considered to be correct even though contested by the War Shipping 
Administration with respect to the $1,460,055.95 mentioned in the 
preceding paragraph. 

WAR SHIPPING ADMINISTRATION 

“27. Inclusion of over a billion dollars in assets of the Adminis¬ 
tration covering expenses paid for other Government agencies out 
of funds provided by them.” 

158. Reply: 

“The War Shipping Administration, in its capacity as procur¬ 
ing agency of the United States in furnishing lend-lease aid, char¬ 
tered vessels to foreign governments under lend-lease arrange- 


























ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 59 


ments, provided ocean transportation of cargoes and personnel, 
repaired and serviced merchant vessels of foreign governments, 
and transferred to such governments marine supplies and equip¬ 
ment. 

“To finance such activities, the Administration received lend- 
lease funds made available to it by the Foreign Economic Admin¬ 
istration, and, therefore, the War Shipping Administration was 
accountable to the Foreign Economic Administration for funds 
disbursed for lend-lease activities. However, as is hereinbefore 
indicated under item 24, it was the policy to defer all lend-lease 
charges pending appropriate instructions from the Foreign 
Economic Administration as to tilth* treatment.” 

159. Comments and opinion: 

It is noted in the comparative balance sheets of the defense aid 
program for June 30, 1944, that the treatment of this type of item 
differed from the treatment as of June 30, 1943, and was in conformity 
with the adjustment made by the Comptroller General in the 1943 
audit report. In the 1944 report it was shown as a reduction in the 
“Excess of assets over liabilities.” 

WAR SHIPPING ADMINISTRATION 

“28. Failure to record over $50,000,000 of accounts payable 
for repairs prior to June 30, 1943.” 

160. Reply: 

“A review of this item indicates that the adjustment made by 
the Comptroller General’s auditors was compiled from information 
received by this office subsequent to June 30, 1943, of which we 
were unaware at the time of closing the books of account for the 
fiscal year ended June 30, 1943. 

“The information was taken from public vouchers which were 
paid in the fiscal year 1944 and in some instances fiscal year 1945. 
As these items were distributed to the proper accounts in these 
subsequent periods, the adjustments to the fiscal year 1943 were 
accomplished.” 

161. Comments and opinion: 

It appears that, in the preparation of the balance sheet journal 
vouchers as of June 30, 1943, no attempt was made by the Adminis¬ 
tration to pick up amounts paid subsequent to June 30, 1943, but 
prior to the date of preparation of the War Shipping Administration 
statements, which amounts represented open accounts payable as of 
June 30, 1943. Although it is recognized that the War Shipping 
Administration may not have been able to pick up the amount ad¬ 
justed by the Comptroller General, it would appear that had it followed 
the procedure used by the Comptroller General, at least a substantial 
portion of the subject amount could have properly been shown as 
“Accounts payable” on the June 30, 1943 statements. 

162. If there had been a reasonable amount of coordination between 
the Finance Division and the Division of Maintenance and Repairs, 
it would appear that instead of omitting this item, a reasonably 
accurate estimate could have been established and used for statement 
purposes. 


60 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


163. The foregoing comment once again indicates either a lack of 
care by the War Shipping Administration in the preparation of its 
annual statements or poor transmission of accounting information 
from the operating divisions to the Budget and Accounts Section. 

WAR SHIPPING ADMINISTRATION 

“29. Failure to disclose actual liability for war-risk insurance 
claims as at June 30, 1943, of over $250,000,000.” 

164. Reply: 

“The published statement of assets and liabilities of the War 
Shipping Administration, as at June 30, 1943, accordingly has 
been adjusted in the Comptroller General’s report, as follows: 


Account Debit Credit 

Claims payable, war-risk insurance: 

Add: Claims in process June 30, 1943, but not 

approved_ $237, 057, 148. 08 

Add: Claims in process June 30, 1943, approved but 

not paid_ 4, 394, 946. 67 

Add: Claims filed subsequent to June 30, 1943, 

relating to 1943 fiscal year_ 8, 559, 617. 24 


Reserve for war-risk insurance: 

Less: Transfer of amount to 

cover outstanding recorded 
claims payable to that amount, $237, 057, 148. 08 
Less: Transfer of amount to 

cover approved claims in 

transit for payment but not 

paid_ 4, 394, 946. 67 

Less: Transfer of amount to 

cover unrecorded outstanding 
claims payable to that account, 8, 559, 617. 24 

Total_ 250,011,711.99 250,011,711.99 

“It will be noted, from the above adjusting entries appearing 
in the Comptroller General’s report, that, of the $250,011,711.99 
of claims payable, only $4,394,946.67 represented approved claims 
in process as at June 30, 1943, but not paid. The remaining 
balance of $245,616,765.32 represented claims which were not' 
approved as at June 30, 1943, of which $237,057,148.08 repre¬ 
sented claims in process and $8,559,617.24 represented claims 
filed subsequent to June 30, 1943, relating to the fiscal year 1943. 
While the individual war-risk insurance claims were not estab¬ 
lished in our statement of assets and liabilities as payables, 
there was included in that statement sufficient war-risk insurance 
reserve to cover all the claims referred to, jfius an adequate 
reserve for contingent claims.” 

165. Comments and opinion: 

Available information indicates that the Chief Adjuster, Division 
of Insurance, War Shipping Administration, had approved 1943 
claims in the amount of $204,789,313.43 prior to June 30, 1943, and 
that this information had been tabulated prior to November 1943. 
It would appear, therefore, that sufficient information was available 
to enable the War Shipping Administration to make the proper adjust¬ 
ment for the major portion of the questioned item prior to the prepa¬ 
ration of its financial statements. 

166. With respect to the statement in the War Shipping Adminis¬ 
tration reply that “237,057,148.08 represented claims in process” 










ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 61 


as at June 30, 1943, it is understood to be the accepted practice in 
preparing the financial statements of insurance companies to report 
such pending claims as liabilities. 11 

167. It is noted that the subject adjustment as made by the Com- 
troller General removed over $250,000,000 from the reserve for war- 
risk insurance. The reserve for war-risk insurance as shown by the 
War Shipping Administration was (prior to subject adjustment) 
approximately $356,000,000. 

THE AUDIT REPORTS OF THE COMPTROLLER GENERAL FOR THE FISCAL 

YEAR ENDED JUNE 30, 1944 

168. A review of the Comptroller General’s audit reports of the 
Maritime Commission and the War Shipping Administration for the 
fiscal year ended June 30, 1944, indicates that, although the reports 
are presented in slightly different form from that used in the 1943 
reports, substantially the same charges are made as to errors, inade¬ 
quacies and deficiencies in the accounting procedures and practices 
followed by the two agencies. The War Shipping Administration 
audit report, however, contains the following statement: “Improve¬ 
ment in the accounting methods and procedures for 1944 is noticeable 
as contrasted with 1943.” 

169. To date (September 9, 1946) the reply of the War Shipping 
Administration to the audit report has not been received, and the 
reply of the Maritime Commission was not submitted until September 
6, 1946—too late for thorough review. However, a quick review of 
this reply indicates substantial similarity to the 1943 reply 12 and it 
is considered probable that the War Shipping Administration reply 
will be along similar lines. 

170. In reviewing the major errors of omission and commission as 
set forth in the 1943 audit reports, the records and procedures with 
respect to fiscal 1944 were of necessity reviewed in connection with a 
few of the 1943 errors. Based upon the 1944 items reviewed it is 
believed that, although some improvement may have been made, 
whether substantial improvement had been made in fiscal 1944 is 
questionable. 

ii The “Convention” form of annual statement required to be filed with State regulatory authorities by 
Insurance companies includes under the caption of “Liabilities for losses and claims” the following: 


Adjusted or in process of adjustment. XXX 

Incurred but not reported. XXX 

Resisted. XXX 

-xxxx 

Less: Deduction for reinsurance... XXXX 


Net unpaid claims..... XXXX 


12 In its reply the Maritime Commission states: “The audit report covering fiscal 1944 is very similar, 
both in make-up, content and criticisms to the report for fiscal 1943 which was answered in considerable 
detail by me in my memorandum to you June 24, 1946, which is already in the possession of the Merchant 
Marine and Fisheries Investigating Committee. This allows, by reference to the previous report of June 
24,1946, of a less detailed answer covering the audit report for fiscal 1944 with special reference to the urgency 
with which the reply is desired by the investigating committee. 

“The 1944 audit report repeats the 1943 criticisms of the Commission’s accounting methods and procedures; 
and that the management of the Commission could not have been furnished current financial information 
from the accounting records; that the internal audit is incomplete, all of which were acknowledged and 
admitted in my memorandum of June 24, 1946, and are confirmed herewith. 

“The inescapable import of all this is that the Commission’s fiscal affairs have received a thoroughgoing 
investigation from a large staff and at considerable cost over a long period from the General Accounting 
Office and that subject to the qualifications in the auditor’s final certificate as quoted above, together with 
the adjustments on the accounts made by General Accounting Office, and with the implied reservation that 
fiscal systems, methods, and procedures will be improved, the conclusion is necessarily to the effect that as 
of June 30, 1944, nothing further remains to be brought to the attention of either the Commission or the 
Congress regarding the Commission’s fiscal system.” 










62 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 

171. Since the foregoing review of the 1943 audit reports indicate 
that, in our opinion, the Comptroller General was substantially correct 
in his criticisms and since nothing has been examined which might 
cast doubt on the validity of criticisms in the 1944 audit report, it 
is considered that a detailed review of the 1944 report, such as has 
been given to the one for 1943, would merely be repetitious as to con¬ 
clusions and would serve no useful purpose. It is considered, how¬ 
ever, that the following miscellaneous comments may be appropri¬ 
ately made before concluding this preliminary report. 

BOOKKEEPING ERRORS 

172. Due to inadequately trained personnel or to poor supervision 
the actual ledger accounts reviewed disclosed many errors. Although 
it is recognized that many of them are merely minor bookkeeping 
errors, their presence in the records makes the tracing of transactions 
in some instances extremely difficult. Reference is made to exhibit 
7 which illustrates the foregoing comment. 

173. Exhibit 7 consists of four photostats of sheets Nos. 5, 6, 12, 
and 18 of account 028 which, for the fiscal period ended June 30, 1944, 
was entitled “Storeroom Freight and Cartage;” and for the fiscal year 
beginning July 1, 1944, account 028 was entitled “Securities De¬ 
posited with the War Shipping Administration.” It is noted that, 
although most of the transactions recorded on the photostated pages 
are dated June 30, 1944, or June 31, 1944, three entries are dated 
July 30, 1944, November 20, 1944, and December 31, 1944—these 
latter dates being mixed in with the June 30, 1944, dates. 

174. It is also noted that the securities are mixed in with the freight 
and cartage entries on the photostat pages; and at the time the ledger 
sheets were first examined, six pages of securities were bound between 
sheet No. 5 and sheet No. 6. The difficulty encountered by the 
machine operator in making the postings at the bottom of sheet 5 and 
the top of sheet 6 is also noted. Apparently the operator finally had 
to abandon the attempt to correct the seven-billion-dollar error by 
debit and credit entries, and resorted to writing in “to correct balance, 
June 31, 1944, $58,830.91 Cr.” 

175. The penciled notation at the bottom of sheet No. 18, which 
explains the change in name of account 028, was not present at the time 
the sheet was originally examined, but was apparently written prior 
to photostating and after the “mix-up” was brought to the attention 
of appropriate personnel as a result of our review. 

INADEQUATELY TRAINED PERSONNEL 

176. As indicated in paragraph 172, many of the clerical bookkeep¬ 
ing errors were caused by inadequately trained personnel. The 
Maritime Commission in its reply to the 1943 audit report states that 
“Civil Service is not equipped to supply double-entry bookkeepers nor 
their executive management.” The reply also points out that the 
Commission’s accounting function is located “on the outskirts of 
northeast Washington, inaccessible to transportation, a location so 
undesirable that it was difficult to obtain employees and of those 
obtained, clerical absenteeism as high as 33 percent was recorded.” 

177. Although the statement that Civil Service is not equipped to 
supply double-entry bookkeepers is open to question, in our opinion 


ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 63 


some of the difficulties of the War Shipping Administration and the 
Maritime Commission were probably due to the fact that the Civil 
Service Commission would not approve in many instances as high a 
rating as the nature of the accounting work to be performed warranted. 
For example, we have been informed that the Civil Service Commis¬ 
sion would not allow a classification higher than a CAF-4 or possibly 
a CAF-5 for the general-ledger bookkeepers primarily because they 
were posting by machine rather than by hand. In our opinion a 
higher classification would probably have resulted in the obtainment 
of a higher type of bookkeeper and many of the errors made in “cod¬ 
ing’ ’ items for posting might have been discovered and corrected prior 
to actual posting. * 

178. Coding consists of indicating on basic accounting documents 
(invoices, vouchers, etc.) the accounting entry or entries to be made 
in terms of debits and credits. Obviously accurate coding is necessary 
if accurate accounting records and statements are to result. Accurate 
coding is therefore a most essential function in the bookkeeping process. 
It is our understanding that in the case of coders also, the Civil Service 
Commission would not approve a sufficiently high rating. Since the 
Civil Service Commission would approve a higher rating for analyzing 
accounting records, we have been informed that an attempt was made 
to overcome the difficulty of underclassification of coders by establish¬ 
ing a unit to analyze the records and correct the errors resulting from 
poor coding. Since normally an item is coded, then posted, and not 
“analyzed” until later, it is evident that many man-hours were lost 
in posting and correcting incorrect entries which could have been 
correct in the first instance if the original coding had been proper. 
Had it not been for the above-mentioned difficulties with the Civil 
Service Commission, those who were actually doing the analyzing 
would probably have been doing the coding in the first instance. 13 

179. It is considered that the location of the accounting records “on 
the outskirts of northeast Washington” may, as claimed by the 
Commission, have affected the caliber of obtainable personnel. Al¬ 
though the considerations underlying the decision to place the ac¬ 
counting personnel and other personnel in the “Y” building are not 
known, we have been informed that early in the expansion of the 
subject agencies an opportunity to move into another temporary 
budding, more conveniently located, was rejected. This information 
has not been verified. 

CONCLUSION 

180. Although, as brought out in this preliminary report, the 
accounting records for the fiscal years ended June 30, 1943, and 
June 30, 1944, were, in our opinion, generally inadequate and poorly 
maintained, the report cannot be dismissed without the observation 
that efforts are currently being made by both the War Shipping Ad¬ 
ministration and the Maritime Commission toward improvement. 
For example, a small-claims unit has been established within the 
Maritime Commission for the purpose of recovering such moneys as 
the avadable records indicate are recoverable—in fact, sources of 

13 A supervisor is quoted as follows: “Due to the methods used in making up the retention registers on the 
reduction in force (September 1940), we are forced to replace our trained and experienced coders who are 
war*service appointees with permanent employees who are inexperienced and must be trained to code our 
accounts.” 



64 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 

recovery which are not indicated in the records are also being success¬ 
fully explored. So far as can be determined the work of this unit is 
quite effective. 

181. Furthermore, in connection with improvements in the ac¬ 
counting system and procedures it should be stated that we have 
arranged for an early conference between “representatives of the 
Comptroller General, Maritime Commission, and the War Shipping 
Administration for the purpose of improving the accounting system 
and procedures in a manner satisfactory to all interested parties. 
It has been suggested that those representatives of the Comptroller 
General who actually made the subject audits and those representatives 
of the two agencies who actually supervise the accounting and book¬ 
keeping functions, be present at the conference in order to insure that 
the agreements which may be reached will not be made without taking 
into consideration the actual problems involved in effectuating them. 
We have merely initiated the conference with the hope that the par¬ 
ticipants will cooperate and conduct it in such a manner as to lead to 
improvement in the accounting records of the Maritime Commission 
and the War Shipping Administration and to future harmony between 
these two agencies and the Comptroller General (exhibit 8). 

182. In view of the inaccuracies noted above and the difficulties in 
tracing transactions through the records, it is considered that this 
preliminary report could not be concluded without stating that, in 
our opinion, the Field Auditing Unit, Audit Division, of the Comp¬ 
troller General’s office did a remarkably good job in making the 1943 
and 1944 audits. With a few exceptions (indicated elsewhere in this 
report) the audit appeared to be reasonable under the circumstances. 

183. We wish to express our appreciation for the excellent coopera¬ 
tion received from representatives of the Maritime Commission, the 
War Shipping Administration, and the Comptroller General in the 
course of our review. On a number of occasions we have informally 
requested information from representatives of these agencies and have 
had many informal discussions with such representatives concerning 
accounting matters. To the extent deemed appropriate full reliance 
was placed on information submitted and on statements made during 
these informal discussions, particularly where written evidence (in - 
the Maritime Commission or War Shipping Administration records 
or in the Comptroller General’s audit working papers) seemed to indi¬ 
cate that such reliance was well placed. 

Sivert M. Wedeberg, 

C. Wilbur Cissel, 

Accounting Advisers to the Merchant Marine 

and Fisheries Investigating Committee. 


Memorandum of Accounting Investigation of the Maritime 
Training Organization, War Shipping Administration, From 
Inception to June 30, 1946 

1 . Scope oj examination 

From September 12 to 17, 1946, the accounting history of the Train¬ 
ing Organization was reviewed, chiefly by means of conversations with 
appropriate personnel in that organization. Various accounting rec- 



ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 65 

ords and reports were briefly scanned to verify assertions made in 
conversations. 

2. Accounting supervision and control by War Shipping Administration 

The Maritime Training Organization was transferred from the Coast 
Guard to the War Shipping Administration on September 1 , 1942. 
The finance office of this organization operated independently of any 
supervision from the War Shipping Administration, Division of Fi¬ 
nance, until the latter part of 1944. Control accounts were main¬ 
tained on the books of War Shipping Administration but were not 
reconciled with records kept by the Maritime Training Organization. 
Beginning in 1946 a study of accounting and budget difficulties was 
made by War Shipping Administration and new procedures, including 
a double-entry accounting system, were introduced as to the 1947 
appropriations effective July 1 , 1946. Attempts are being made to 
correct errors in accounting for earlier appropriations. 

Many of the accounting difficulties described below appear to have 
resulted from a lack of adequate accounting supervision and control 
of the Training Organization by War Shipping Administration. 

3. Appropriations administered 

Through fiscal year 1946 the Training Organization administered 
the following appropriations: 


Fiscal year— 



1942 

1943 

1944 

1945 

1946 . 

No year 

Maritime training fund. 

State marine schools_ 

Working funds_ . .. 

112/30523 

1120522 

112/45940 

J 112/30523 

1 1130523 

1130522 
112/45940 

J 1 1144002 

1144001 

112/45940 

1 1154002 

1154001 

1155940 

1 1164002 

1164001 

11x0523 





Maritime training fund was appropriated for (1) training merchant marine personnel and (2) purchase 
of training ships (112/30523). 2 

State marine schools funds were appropriated to reimburse States for expenses incurred in the main¬ 
tenance and support of marine schools in such States. 

Working funds were transferred from War Department appropriations for transportation of Army 
personnel. 

1 Recruitment, manning and other operations covered by these appropriations, were not administered 
by the Training Division. 

2 Some training ships were purchased under War Shipping revolving fund (11x0520 or 11x4000) instead of 
maritime training fund, balance of which was transferred to surplus funds of Treasury on June 30, 1945. 

J. Accounting records 

(a) Cash book single-entry accounts were kept in a cash book, 
separate accounts being maintained by appropriations and by dis¬ 
bursing offices. The cash book was posted from daily schedules 
submitted by the field finance offices. An analysis of these accounts 
by the office of the Assistant General Accountant, War Shipping 
Administration, revealed the following unexplained differences 
between the disbursements posted to such accounts and the Treasury’s 
account current statements as of June 30, 1945. 

























66 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 



Balance 

overstated 

Balance 

understated 

Maritime training fund: 

1945 appropriation 1154002 .. _ . _ _ 

$332,250.11 
811,131. 86 


1944 appropriation 1144002 - - .. _ 


1943 appropriation 1130523 .. __ _ _ 

$39,391. 90 

No year appropriation 11x0523 

2, 846. 20 
5, 831. 96 

2,139. 55 

5, 774. 06 

1,159,973. 74 
39, 391. 91 

1,120, 581. 83 

State marine schools: 1944 appropriation 1144001 


Working funds, U. S. Army: 

Appropriation 112/45940 . .... ______ __ _ 


Appropriation 1155940.....__. _ 


Total___ ____ _ _ 

39, 391. 90 

Understated _ - __ 

Net overstatement _ _ _ 





Frequently entries were made in the cash book to record unexplained 
differences between the balances therein and balances shown in the 
Treasury’s monthly account, “Current statements.” These adjust¬ 
ments were not reported to War Shipping Administration. Following 
is a sample of the adjustments entered in January and February 1945: 


Date 

Training organization disbursing 
office 

Credits to appropriation 

1144002 

1154002 

January 1945, . . . 4 ... 

New York_ __ _ ___ 

$482, 290. 02 
235, 951. 57 
93, 202.12 


Do_ 

San Francisco.. _ 


February 1945_ _ - 

Atlanta.. _ . . _ . 


Do_ 

Washington . . ... __ _ 

$489, 624. 47 
49.136. 48 

Do_ 

New York_ . ___ 






The following transfers of appropriations were recorded erroneously 
as disbursements and so reported to War Shipping Administration: 


January 1944, Washington__$2, 921, 086. 63 

March 1945, Washington_ 1, 520, 338. 44 


Numerous other errors in keeping the cash book appear to have 
been made. It is understood that the training organization is now 
engaged in locating such errors and reconciling the cash book with the 
Treasury’s account-current statements. 

(6) Collections .—Schedules of collections (Form 1044) detailed by' 
Treasury symbol accounts were submitted daily to Treasury with 
copy to training organization covering: 

(1) Appropriation reimbursements and refunds, 

(2) Miscellaneous receipts, and 

(3) Special deposits. 

(1) Memorandum records of appropriation reimbursements and 
refunds were maintained and the amounts reported to the War 
Shipping Administration but such records and reports were not 
reconciled with the monthly Treasury’s account current statements. 
(2) Miscellaneous receipts were reported as appropriation reimburse¬ 
ments and refunds until a General Accounting Office audit- 
revealed the mistake and transfers were made. As a lesult, miscel¬ 
laneous receipts rose from $167,000 in 1944 to $731,000 in 1945 and 
$1,077,000 in 1946. These receipts cover sale of stores, subsistence, 
Government property, etc. No accounting record of such receipts 
was maintained and no reports thereof were rendered to War Shipping 
Administration. (3) Special deposits covered deductions for em¬ 
ployees war savings bonds, Federal withholding tax, civil-service 
























































ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 67 


retirement fund, and other purposes. Items reported on “ Schedules 
of collections” and “Schedules of voucher deductions” (Form 1096) 
by field offices were recorded in memorandum records but no record 
was made of voucher deductions originating in the Washington office 
affecting civilian employees. The memorandum records were not 
reconciled with the Treasury’s account-current statements. 

(c) Other aspects of accounting.- —Officials in charge of the Training 
Organization assert that the records maintained by the field offices 
were properly kept, including cash accounts and card records of 
physical property acquired; that qualified auditors reviewed the 
records of each field office at 4-montli intervals; and that cost control 
of subsistence (one of the largest expenses) was maintained through 
monthly statistical reports from each field office. 

As noted in footnote (1) to paragraph 3 above, parts of appropria¬ 
tions for Maritime Training Organization through fiscal 1946 were 
administered by War Shipping Administration, hence accounting 
control thereof could not be maintained by the Training Organization. 
It is understood that appropriations transferred to Public Health 
Service were accounted for quarterly but that no reports of the status 
of such transferred appropriations were made to War Shipping 
Administration. 

5. Budgetary control 

(а) Reimbursements to appropriations.- —Details could have been 
secured by analysis of monthly collection schedules from field offices 
but no control was maintained and, in fact, reimbursements to appro¬ 
priations were combined with appropriation refunds for report 
purposes. 

(б) Obligations incurred during current fiscal year. —Forms F-l and 
F-2 submitted monthly by the field offices report obligations and 
disbursements cumulative for the fiscal year by appropriations. These 
reports are detailed by budgetary accounts and subclassifications 
thereof for management control. Totals from these reports are shown 
on “Report of obligations” to War Shipping Administration budget 
officer and posted to allotment ledger accounts with each field office. 
As of June 30, 1946, appropriation 1164002.001 obligations were 
reported to War Shipping Administration (based on Form F-l 
reports) as $35,311,504.59 whereas the allotment ledger showed 
$38,616,922.57. This difference may arise from duplications in stores 
accounts in the allotment ledger. 

(c) Unliquidated obligations brought forward from prior years .— 
These are handled in the same manner as obligations incurred during 
current fiscal year, described above, and are subject to the same criti¬ 
cism for lack of control. 

(d) Expenditures during fiscal year. —Expenditures are reported on 
Form F-l as liquidation of obligations and posted to allotment ledger 
accounts but reports are compiled from the cash book, not from Form 
F-l reports. The cash book is posted from “Schedules of disburse¬ 
ments” submitted daily by field offices to Training Organization. 
The monthly totals of the schedules of disbursements, as posted to the 
cash book were not reconciled with the allotment ledger liquidations. 
As of June 30, 1946, appropriation 1164002.001 expenditures were 
reported to War Shipping Administration (based on cash book) as 
$31,033,826 whereas the allotment ledger (posted from Form F-l 
reports) shows total liquidations of $33,264,442.38. The difference 
may arise from duplicate stores accounts in the allotment ledger. 


68 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


6. Conclusions 

The accounting records were inadequate and very poorly kept. No 
satisfactory procedure for recording financial transactions was devised 
until July 1, 1946. Certain aspects, such as accounting for miscel¬ 
laneous receipts, which contain the potentialities of substantial losses 
to the Government were entirely uncontrolled. The extent to which 
they resulted from inexperienced accounting personnel cannot be 
determined. 

Frederick N. Jones. 

September 18, 1946. 


Exhibit 1 

Appropriation symbol cash accounts not reconciled as of Sept. 9, 19^6 


Appropriation 

Symbol 

Description 

11X0521_ 

891-804 

Marine and war-risk insurance fund. 

11X0523_ 

207-960 

Maritime training fund. 

11X0523_ 

207-961 

Maritime training fund, New York. 

1130523_ 

207-960 

Maritime training fund, District of Columbia. 

1130523_ 

207-961 

Maritime training fund, New York. 

1130523_ 

207-962 

Maritime training fund, San Francisco. 

1130523_ 

207-963 

Maritime training fund, Los Angeles. 

1130523_ 

207-964 

Maritime training fund, Atlanta. 

1130523_ 

207-965 

Maritime training fund, Boston. 

1130523_ 

207-966 

Maritime training fund, New Orleans. 

1130522_ 

207-960 

State marine schools. 

11F5859_ 

891-650 

Training organization (Treasury reports balance of 
$8,617.48). 

11F5859_ 

891-652 

Victory tax withheld, New York. 

11F5859_ 

891-662 

Victory tax withheld, San Francisco. 

11F5859_ 

891-664 

Victory tax withheld, New Orleans. 

11F5850_ 

891-700 

Training organization (Treasury reports balance of 
$2,793.70). 

11F5850_ 

891-712 

War Savings bonds, San Francisco. 

11F5850_ 

891-714 

War Savings bonds, New Orleans. 

11F5859_ 

891-651 

Collections, Boston (Treasury reports balance of 
$5,542.07). 

11F5859_ 

891-656 

Collections, Atlanta (Treasury reports balance of 
$4,779.74). 

11F5859... 

891-665 

Collections, Los Angeles (Treasury reports balance of 
$6,176.34). 


Exhibit 3 

United States Maritime Commission, 

Regional Construction Office, 

Oakland , Calif ., November 2, 1944- 

General Accounting Office, 

Audit Division , Washington , D. C. 

Attention: G. S. Ceras, Principal Accounts Auditor. 

Subject: USMC Emeryville Warehouse. 

Reference: (a) GAO letter dated August 23, 1944, to C. W. Flesher, 
West Coast Regional Construction Office, U. S. Maritime Com¬ 
mission. 

Enclosure: (A) Inventory Certificate forwarded by reference (a). 

Gentleman: By reference (a) you requested that we forward 
enclosure (A), stating the Inventory of the USMC Emeryville Ware- 































Exhibit 2, Sheet 1 of 5. 




1 



ftown 1 4*cr Mnurarr 

m- -»■* «*•- 

UN " ED STATES 
MARITIME COMMISSION 

V 

Division or FfNiAWfct 

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Sow lark Ssn.% Draft S»« 191790 drw» m Flrot ms&rnml Hwk, 
Ism lark City, roprooafitlnf final pt ywit wmSmr &NM^ott#ti«i 
Contra at MGo~13?t9, HI**), ooworiitg OKOotoivo profit# in 
tfeo anoint of $4, 996, ?&>•*’• for tho floeol y*«r «**a.ia«g 
Soworabor 30, 19m, In ooumetion with eorydo omt - w. .to uki 
rob-ooo tract# to form ah *rticloo in of ii» mf 

effort ooaUjMd for moo of tho M&rlttm Cmmtmim. mad tfc* 
lar, lomj oatf Iroorary Oopaurtsoont*. 



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Exhibit 2, Sheet 2 of 5. 



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UNITED STATES MARITIME COMMISSION 

t^tVMMOM or FmbAMOI 



















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fiPO O - 94917 
















ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 69 

house, Emeryville, California, as of June 30, 1943. The following 
method was used to arrive at the Inventory of Commission-owned 
materials stored in the Emeryville Warehouse as of June 30, 1943. 

A total was made of all receipts and deliveries during the period of 
June 30, 1943, to October 1 , 1943. By adding deliveries and sub¬ 
tracting receipts from the actual Commission Inventory taken as of 
October 1 , 1943, the Inventory as of June 30, 1943, was determined to 
be $2,663,421.21. 


October 1, 1943, Inventory_ $2, 991, 774. 91 

Deliveries June 30, to October 1, 1943_ 277,’ 144. 93 


3, 268, 919. 84 

, 605, 498. 63 

2, 663, 421. 21 

Due to emergency conditions existing on the West Coast upon 

establishment of the Regional Office in April 1942, it was necessary 
for the Commission to obtain immediate warehouse space for the 
storage of shipbuilding materials not required at the Seattle-Tacoma 
shipyard at Tacoma, Washington. The , urgent need of aircraft 
carriers resulted in the conversion of thirty-four C3-S-A1 vessels 
under construction at this Yard. 

Transfer of the cargo-vessel construction to the Navy for completion 
as aircraft carriers resulted in an enormous amount of surplus ship¬ 
building material which had to be removed promptly from the Seattle- 
Tacoma Shipbuilding Corporation in order that there would be no 
delay in the construction of the carriers. The USMC Emeryville 
Warehouse was acquired for this distinct purpose and the first ma¬ 
terial was received on June 30, 1942. 

The necessity for prompt removal of materials prevented Seattle- 
Tacoma from shipping complete assemblies in an orderly manner. 
It was recognized at the time that it was practically impossible to 
obtain the Commission’s cost prices for the items in order that Prop¬ 
erty Removal Notices could be prepared, transferring the materials 
from the account of the contracts at Seattle-Tacoma Shipbuilding 
Corporation to the USMC Emeryville Warehouse. As a result, the 
material was received and recorded on a commodity basis without a 
dollar-value inventory. 

Reallocation of material out of the Emeryville Warehouse to other 
Commission Contracts was handled in the same manner and billings 
were effected by Property Removal Notice after the cost price of 
the material had been determined and the Property Removal Notice 
covering the incoming shipment had been received. In this manner, a 
very close control of the incoming and outgoing shipments was main¬ 
tained on a commodity basis and discrepancies between material as 
received from Seattle-Tacoma as against Packing List quantities were 
adjusted between the Commission and Seattle-Tacoma prior to the 
issuance of the Property Removal Notice. 

From the accounting standpoint, the material in the Emeryville 
Warehouse remained charged to Seattle-Tacoma contracts until 
receipt of material at Emeryville was acknowledged by signature of 
the Warehouse Superintendent on the Property Removal Notice. 

At the present time there are stilbmany Property Removal Notices 
outstanding which are being completed as rapidly as possible. How¬ 
ever, until all Property Removal Notices have been completed to our 






70 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 

satisfaction, it is impossible to determine the exact dollar-value in¬ 
ventory of the material in the Emeryville Warehouse as of any date 
prior to the Actual Inventory taken by the Procurement Division on 
October 1, 1943. Therefore, it was necessary for us to arrive at the 
Inventory as of June 30, 1943, in the above manner and any adjust¬ 
ments which are made to the October 1, 1943, Inventory should neces¬ 
sarily be reflected in the Inventory as of June 30, 1943. 

Very truly yours, 

C. W. Flesher, Director . 


Exhibit 5 

United States Maritime Commission 

DIVISION OF FINANCE—ACCOUNTING SECTION 

Chart of Accounts 

To: Head, Budget and Statement Unit. 

Head, Review and Coding Unit. 

Head, Bookkeeping Unit. 

From: Chief, Accounting Section. 

Subject: Procedure to be followed in Coding Bethlehem Repair 
Vouchers. 

On April 1, 1941, the Bethlehem Steel Co. entered into a number 
of contracts with the Commission to provide for the making of 
repairs, alterations, and/or conversions of such vessels as might be 
ordered to the various yards of the company during the respective 
terms of the contracts. 

It was stipulated in the agreements that the company was to realize 
a profit of 10 percent of cost before interest and taxes. 

It has since developed, however, that on contracts completed to 
March 31, 1942, the company has realized a profit of $2,588,008 in 
excess of the 10 percent of cost authorized in the agreements, and as 
a result thereof, on June 12, 1942, the company proposed to refund 
the aforementioned excess profits to the Commission. 

The proposal provides for a 10 percent deduction to be allowed 
on all Bethlehem steel repair vouchers (submitted subsequent to 
acceptance by the Commission of the proposal), until such time when 
the accumulated total of the deductions so taken shall equal $2,588,008 
or the amount which the company desires to refund. 

The company further proposed a revised billing rate “per payable 
hour” for the second quarter of 1942 on work to be performed and 
retroactively to all work performed prior to April 1, 1942, on vessels 
which were incomplete as at the same date. 

The company’s proposal was accepted by the Commission on July 
2, 1942. 

For the purpose of coding Bethlehem Steel repair vouchers where a 
10-percent deduction is made in accordance with the above effective 
immediately, the following procedure will be employed: 

The gross amount of repair charges to vessels will be debited by 
vessel and period to the proper expense account, and gross credits 
covering adjustments of labor billings on repair invoices previously 




Exhibit 4, Sheet 1 of 2. 


£4 ' TAUS M^ITIMF COMMISSI 

v\ -■ H I N G ' *' C. 

INVOICK 


TO: 


U. $. NAVY DEPARTMENT, 

ATI 

ROOM 4-2413 \‘AVY BU;uDimc ? 

WASHINGTON D.C* 


DATE J** v ‘ < 

INVOICE NO. C-*43 

DJE DATE 


rr 


J MV / Q r FVJ4NCC- U. 8. MAR 1T MC CC"* I S3ION-WASH 1 NCjTON D.C * 

i6 5»4 HI SC 


A MOUNT 


m^hull -2jji.BUJkPgM HUU-17. 


ACVAV.r OF ? • N )S TO COVER the estimated cow- 

•- T. K T $ ON (.0M TO T-E COMMISSION OF THE ABOVE 
-••jl w'.-^VY EFEREnf'r WHICH WA3 DELIVERED 

"3 YOU H4V^!P. ETE AT THE 5EATTLE-TAC0MA SHIP- 
l . 0! NC CO HO" AT I 0=.. 

oavn-A -♦ i 35900:001 forking fund, 

U. S. MARITIME COMMISSION, 

1941-1*43 


* 2 , 475 , 000.00 

1 /' 






v 


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JACK HA* 


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*2,475,000.00 


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4 


ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 71 

rendered and paid will be credited by vessel and period to the appro¬ 
priate expense accounts on the books of the War Shipping Adminis¬ 
tration. The 10 percent deduction from vouchers will be credited 
to account 550, reserve for Bethlehem Steel Co. adjustments. In cases 
where a charge for repairs or credit for labor adjustment billings is 
applicable to the working fund 11X5905.001, the charge or credit in 
coding the voucher will be to account 565. The coding auditor, in 
preparing Form 1080, will debit account 116, cash in transit, and note 
a request (to be attached to Form 1080) to the Disbursing Section, to 
type on schedule 1081, that account 116, is to be credited. 

In instances where a charge for repairs or credit for labor adjust¬ 
ment billings is applicable to WSA-DA appropriation 111/50027(05), 
the charge or credit in coding the voucher will be to account 042. 
In preparing Form 1080, the coding auditor will debit the proper 
expense account on the WSA-DA books, and note a request to the 
Disbursing Section, to type on schedule 1081, that account 042 is to 
be credited. 

The following examples and solutions in connection with the above 
are offered for instruction and guidance of Accounting Section per¬ 
sonnel: 



Repairs 

NavDof 

Total 

Example No. 1 

Charges: S. S. Unicoi _ . .... 

$69,913. 50 
10, 640. 48 

$67, 054. 36 
41, 090. 48 

$136, 977. 86 
51,730.96 

Credits: Various vessels_____-. 

10-percent deduction from gross voucher ($136,977.86). _... 

85. 246. 90 
13,697. 79 

Net voucher disbursed from 11X0520 _. _ .. 



71, 549.11 

Example No. 2 

Charges: S. S. Darkington (DA vessel). _ ____ 



175.000. 00 
60,000.00 

Credits: Various vessels _ _ _ _ __ 

40,000. 00 

20,000.00 

10-percent deduction from gross voucher ($175,000)_ 

115. 000.00 
17, 500.00 

Net. voucher disbursed from 11X0520 .. 



97, 500.00 

Example No. 3 

Charges: R. R. Afarine.r iDA vessel) ___ __ _ _ .. 


■ 

1,000.00 
100.00 

10-percent deduction from gross voucher.._ _ 



Net voucher disbursed from 111/30027(05)__ _ . 



900.00 

Example No. 4 

Charces- R. R. Pineatone . ___ . _ 

200.00 

400.00 

600.00 
60.00 

10-percent deduction from gross vouchers.. _ _ . 

Net voucher of which $180 disbursed from 11-X0520 and $360 
disbursed from 11X5905.001 ____ 



540.00 








































72 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


SOLUTION TO EXAMPLES 


Document 

i 

Account 

Books 

Debit 

Credit 

Debit 

Credit 

Example No. 1 

Voucher . . ... _ 

801 

WSA 



$39, 273. 02 



$69, 913. 50 

$10, 640. 48 



25, 973. 88 


566 

WSA 


67, 064. 36 

41, 090. 48 


550 

439 

116 

439 

439 

Cash 

Cash 

116. 

042 

801 

566 

550 

439 

116 

439 

439 

Cash 

Cash 

116 

806 

439 

439 

Cash 

Cash 

042 

806 

042 

439 

042 

439 

439 

Cash 

Cash 

550 

801 

566 

550 

439 

116 

439 

439 

Cash 

Cash 

116 

WSA 


$13,697. 79 
71, 549.11 

WSA 




WSA 



25, 973. 88 

Form 1081 

WSA 



25, 973.88 

WSA 



25, 973. 88 

M R M 

11X5905 001 



25, 973. 88 

11X0520 



25, 973. 88 

Example No. 2 

WSA 



25, 973. 88 

WSA 



175, 000. 00 

Form 1080 

WSA 



40, 000. 00 
20, 000. 00 
17, 500. 00 
97, 500. 00 

WSA 




WSA 




WSA 




WSA 


« % 

20, 000. 00 

Form 1081 

WSA 



20, 000. 00 

WSA 



20, 000.00 

M R M 

11X0520 



20, 000.00 

11X5905.001.. 



20, 000. 00 

Fnrm 1080 

WSA 



20, 000. 00 

WSA-DA 



175, 000. 00 

Form 1081 

WSA-DA 



175, 000. 00 

WSA-DA 



175, 000. 00 

M. R. M 

11/30027 (06) 



175, 000. 00 

11X0520 



175, 000. 00 

Example No. 3 

Voucher 

WSA 



175, 000. 00 

WSA-DA 



1, 000.00 

Form 1080 

WSA-DA 



100.00 

900.00 

WSA-DA 




WSA-DA 



100.00 

Form 1081 

WSA-DA 



100.00 

WSA-DA 



100.00 

M. R. M 

111/30027 (05) 



100.00 

11X0520 



100.00 

Example No. 4 

Voucher. 

WSA 



100.00 

WSA 



200.00 

400.00 

Form 1080_ 

WSA 




WSA 



60.00 
540. 00 

WSA.. 




WSA. 



40.00 

Form 1081_ . .... 

WSA 



40.00 

WSA... 



40.00 

M. R. M_ 

11X5905.001... 



40. 00 

11X0520. . 



40.00 


WSA_ 



40.00 






At such time when the company has refunded the full amount of 
the excess profits in the manner described above as reflected by the 
balance in account 550, an accounting distribution will be made, mis¬ 
cellaneous journal vouchers and forms 1080 prepared to credit the 
appropriate expense accounts and to reimburse the proper appro- 

priations. Wm. U. Kirsch, 

Chief, Accounting Section , Division of Finance. 


August 25, 1942 











































































































Exhibit 6, Sheet 1 of 4. 


na<-*r 


3ot> 


WAR 


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rr ant* o; ’r.«- X nt .1. »t . ters in.. Jm£ .jerQu*. 

v .4 i rth a*. c n i 70 a. r >o. 


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of ri»k • * 


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Exhibit 6, Sheet 2 of 4. 


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KASHIN TON D C. 

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Exhibit 6, Sheet 3 of 4. 






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pro rata 

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B~nd*r &pp.roved by: WARTIME 


iWi ^ A 


^rii A # U42 


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B^L FWD FROM SHEET 11 


JV 4* ( 4066 


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FREIGHT JV 44 6 4098 

ALASKA SS Cu SCAT 1TEE WASH. ONE 
US TREASURY NOTE AT 34 PER CENT 
INTER. OAT ED MAR 15 1940 DUE MAR 

i^^ 5 ,5L 0A * 1945 SER,es 3490 TO TREASURY 
SEPT.3 1942 JV6 4148 

ALASKA TRANS. CQ SEATTLE WASH FIVE v 
US TREASURY NUTES AT 34 PER CENT 
♦INTER. BATED DEC 18 1940 DUE DEC 15 1945 
HAVING DEC 15 1942 AND RCA B-1945 
SERIES 11495 , JV6 4148 

g 1945 SERIES 11496 . JV6 4148 

« A * 45 n 11497 JV6 4148 

« » n 11498 JV6 4148 ^ 

w 1155(4 JV6 4148 i 

TwTRE^SURY SE?T 3 1942 
AMERICAN So AFRICAN LI NEC. INC 26 
BEAVER ST NY NY FIVE US TREASURY 
NOTES I 1 2 PER CENT DATED JUNE 5 
1942 DUE DEC 15 4946 BAYING DEC 15 
1942 AND $ 0 A 


| T946 SERIES 22121 

* 1946 " 22122 

* * " 22123 

* * I* 


JV4 4148 
JV6 4148 
JV6 4148 
JV6 4148 
JV6 4148 




I 00.000.0 0 


1 0.0 oo.o o 
10 , 000.0 0 
10 , 000.0 0 
10,0 00.0 0 
10.0^00,0 0 


" " " 22124 JV6 4148 

n " " 22125 JY6 4148 

Tu TREASURY NuV 6 1942 

SO AFRICAN LINES INC FIRE 
1 3k PERCENT TREASURT 8UN0SS ' 

DATED DEC 1 1942 QUE JUNE 15 1948 
JUNE 15 1944 AND SQA 
3ST0 JV6 4148 

3508 JV6 4148 

3509 JV6 4148 

1510 J86 4148 

1511 JV6 4148 

TO IREASUR* DEC 30 1943 

B.L. SHIPPING CO INC 402 LEX I LOTON ' 

-VE NY NY FIVE US TREASURY NOTES 
34 PERCENT OATEO DEC 18 1940 DUE DEC 15 1945 
HAVING DEC 15 1942 & SCA 
8 1945 SERIES 22714 JV6 4T48 

" 1945 19 22715 JV6 4148 '**•£' 

" 1945 SERIES 22716 JV6 4148 

• " SERIES 22717 JV6 4148 

' m *■:&; 122718 JV6 .4748 


10.000.00 
10.0 00,0 o 
1 0,0 00.0 0 
10.000.00 
10.000.0 0 


10.0 00.0 0 
10.0 00.0 0 
10.0 00.0 0 
1 0,0 00.0 0 
10,0 00.0 0 


1 0.0 00.0 0 
10.0 000 0 
10,000.0 0 
10,000.0 0 
10.000.00 






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98.80 


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98.60 


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ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 73 


Exhibit 8 

Comptroller General of the United States, 

Washington 25, March 1, 1946. 

Capt. Edward Macauley, 

Acting Chairman, United States Maritime Commission, 
Washington, D. C. 

My Dear Captain Macauley: Reference is made to your letter 
of February 8, 1946, addressed to the Honorable Richard B. Wiggles- 
worth, House of Representatives, in which you state, in part: 

“It is the determined purpose of the Commission, as now consti¬ 
tuted to institute a system of accounting which will be entirely accept¬ 
able to the Comptroller General. Effective with their appointments 
yesterday Messrs. Slattery and Quinn, as Director of Finance for 
Construction and Director of Finance for Operations, respectively, to 
whom have been delegated the duties heretofore under the jurisdic¬ 
tion of Mr. Anderson, have been instructed to cooperate closely with 
the Comptroller General, as well as with Members of Congress and 
other governmental officials in carrying out those obligations of the 
Maritime Commission under their jurisdiction .” 

It is noted that changes are being made in personnel and possibly 
in organization relating to the fiscal activities of the Commission. 

It is especially noted that the Commission proposes to institute an 
acceptable system of accounting. 

It is believed that past deficiencies in the Commission’s accounting 
and auditing accomplishments have been due in some measure to the 
lack of clearly defined goals of auditing, accounting, and reporting 
objectives. It is suggested, therefore, that the Commission, itself, 
redetermine the fiscal objectives, leaving only operating methods to 
the discretion of designated supervisory officials. 

As the first step in the redetermination of fiscal objectives, it is 
suggested that the officials who are to be responsible for the account¬ 
ing, auditing, and budgetary functions be asked to submit to the 
Commission a joint statement of proposed redetermined fiscal objec¬ 
tives. This statement should include: 

(a) The Commission’s own need for fiscal services proposed to be 
rendered. This would include the need for information: 

(1) For management: 

(a) Operations. 

(b) Budget. 

(c) Price renegotiation. 

(d) Other purposes. 

(2) To comply with law and governmental regulations. 

(3) To make reports to the Congress. 

(, b ) The fiscal services that can be rendered most effectively by each 
of the several major accounting, auditing and budgetary units, 
respectively. 

In preparing the proposed statement of objectives, consultation with 
interested governmental agencies would be beneficial. 

As the second step in the redetermination of objectives the Com¬ 
mission, after due consideration would: 

(a) Appraise the suggestions offered. 

(, b ) Canvass its known needs. 

(c) Make a final determination of objectives. 



74 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 

(d) Clearly define the respective responsibilities for records and 
reports of each major fiscal unit and supervising official. 

The final objectives as thus determined would not be static, but 
would be subject to change at any time to meet changing conditions. 
The major fiscal supervisors would be required to make recommenda¬ 
tion to the Commission for changes of objectives, whenever circum¬ 
stances warrant such action. 

After the determination of objectives, as outlined herein, the actual 
accomplishment thereof should be left to the diligence and technical 
skill of the designated officials who would be held responsible for the 
performance of the Commission’s requirements. 

The over-all benefits to be derived from the suggested procedure 
for redetermining fiscal objectives may be summarized thus: 

(a) All of the Commission’s needs would be considered, and these 
needs would be the determining factor in the work to be required of 
the several fiscal units. 

(b) Readjustment of objectives to meet changing needs would be 
facilitated and controlled. 

(c) Those supervising the work would have definite authorized 
goals of attainment in view at all times. 

(d) Responsibility for accomplishments would be fixed. 

(e) Duplication of effort and other purposeless activities would be 
reduced to a minimum. 

(f) All fiscal reports and records would be coordinated. 

Respectfully, 

(Signed) Lindsay C. Warren, 
Comptroller General of the United States. 


United States Maritime Commission, 

Washington 25, D. C., March 12, 1946. 
The Honorable Lindsay C. Warren, 

Comptroller General of the United States. 

My Dear Mr. Warren: Reference is made to your letter of March 
1, 1946, in which you quoted, in part, my letter of February 8, 1946, 
to the Honorable Richard B. Wigglesworth, House of Representatives, 
relative to instituting a system of accounting that will be acceptable 
to you. 

The Commission and its staff are studying your proposals submitted 
for their consideration, and the suggested over-all benefits to be derived 
from the suggested procedure for redetermining fiscal objectives. 
Upon completion of such studies you will be promptly notified. 

Sincerely yours, 

(Signed) Edward Macauley, 

Acting Chairman. 





accounting practices of governmental agencies 75 


Exhibit 9 

General Accounting Office, 

Washington , July 17, 1946. 

Audit Division Tnmn'rv Nn 

A-CER-FATT 6 qU ° te Audit WSA*. 

^ Year ended 6/30/44. 

Boston Operating Co., Boston, Mass, (stevedores). Review of 
1944 and 1943 statements of operations. 

Mr. F. E. Hicks, Jr., 

Assistant General Accountant, 

IT ar Shipping Administration , Washington, D. C. 

In analyzing and reviewing the statements of operations of the 
above stevedore company we find the following: 

(a) 1 his company increased its salaries to officers and various other 
accounts for the year 1944 over 1943, so that with recorded salary 
increases, and other increases under the guise of “traveling” etc., the 
management apparently paid itself increased compensation of $40,000 
to $50,000 and thereby prevented the recapture of profits of that 
amount. 

(5) This company charged 1944 stevedoring costs on work for the 
War Shipping Administration (no WSA timekeepers, on the work), 
in amounts which produced a rate of $5 per ton approximately. 

(c) On work for the Army and others (the Army stated as supplying 
timekeepers) the charges for stevedores time produced a rate of $1.80 
per ton. 

The total possible excess appears as follows: 

Excess charges on a tonnage basis over the charges to Army 19,350 tons, 

at $3.20__ $62,000 

Inflated overhead expenses_ 40, 000 

Total indicated inflation__ 102, 000 

The expense distribution accounts are not exactly uniform but a 
comparison is sufficient to show the arbitrary increases which almost 
in their entirety could have been paid by the management to itself: 


> 

Year 

1944 

Year 

1943 

Increase 

Percent 

increase 

Salaries, officers - _ - __ - - 

$12, 000 
5, 000 
10, 528 

1,125 

1, 945 

$4,160 

$7, 840 
5, 000 

7, 700 

1,125 
1,945 


Bonuses, officers _- ___ 

300 

300 

Traveling and entertainment _ _ _ 

Directors’ fees— _ _ _ - _ __ .. _ 

2, 828 

Gratuities _ _ - - _ - _ 



Convention and Christmas. _ __ .. . _ . . 



30, 598 

6, 988 

23, 610 


950 
7, 627 

1, 725 
6,127 
15, 286 
9, 828 
422 
2,117 
3,706 
796 


950 

5,767 

1, 725 

6,127 

10, 854 

2, 700 


Salaries, office _._ _ _ __ ... .. 

1,860 

300 

Auditor _ _ _ .. .. . 

T?p«;prv T P for (Jam air p. nlaims fnrovision) 



Superintendent and general foremen -- 

Timplrfippprs _ __ _ _ 

4, 432 

7,128 
17, 551 
472 

300 

XTisppllnnprms _ __ _ ____ 


T'ntal tonnnpp ha/nfllpd _ _ - . 

10, 982 


79,182 

38, 431 

40, 751 


364, 615 
(22 cents) 

226, 985 
(17 cents) 

137, 630 

60 








































































76 ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 


This company’s records have the appearance of having been grossly 
manipulated. 

The management evidently paid itself $5,000 to $6,000 iu 1943 and 
$40,000 to $50,000 in 1944. Increased tonnage handled of 60 percent 
bears no such relation to expense as the increases shown above indi¬ 
cate; for example, the 300-percent increases in office salaries, superin¬ 
tendence, and traveling and entertainment. The rate of such ex¬ 
penses should decrease, not increase, radically. Directors’ fees of 
$1,125 and gratuities of $1,945 and Christmas and entertainment of 
$950 are alleged by a company whose total capital is $1,000. 

The War Shipping Administration did not have its own timekeepers 
on the job at this company. The time records were neither signed nor 
approved. The cost per ton of $5 for x War Shipping Administration 
work compares with a cost of $1.80 for Army loading, and War Shipping 
Administrate a cost was at a rate nearly three times the Army rate. 
The rate was in excess of similar companies. (The Pills ton Steve¬ 
doring Corp. of New York showed a tonnage cost of $2.56.) 

Please advise of the results of your examination of this company. 

Ben C. White, 
Principal Accounts Auditor. 

cc: J. H. Yates. 


Exhibit 10 

COPY OF INTEROFFICE MEMORANDUM 

In reply refer to 5-35 
November 15, 1943 

To: Mr. Quinn, Controller. 

From: Chief, Budget and Accounts Section. 

Subject: Repairs and betterments on requisitioned vessels. 

In several instances, title has been requisitioned on several vessels, 
with no payments having been made to the owners of the vessels 
pending settlement of “just compensation.” 

In view of the fact that no purchase price has as yet been established, 
it is proposed to carry these vessels at the nominal price of $1 for 
balance-sheet purposes, and to leave all costs of repairs, betterments, 
and/or conversions in account 1000 “undistributed expenditures.” 
Your comments on this proposal will be appreciated. 

(Signed) Wm. U. Kirsch, 

Chief, Budget and Accounts Section, Division of Finance. 

Mr. Kirsch: In the above cases, I would suggest that you ac¬ 
cumulate all costs of betterments and/or conversions in the “floatin 0 ’ 
equipment account.” 

(Signed) Jos. M. Quinn, Comptroller . 


December 20, 1943. 



ACCOUNTING PRACTICES OF GOVERNMENTAL AGENCIES 77 

i V ^ ^ • \ 

COPY OF INTEROFFICE MEMORANDUM 


In reply refer to 5-35 

_ _ . . November 13, 1943. 

To: Mr. J. M. Quinn, Comptroller. 

From: Chief, Budget*and Accounts Section. 

Subject: Steamship George Washington. 

At present, this vessel is being carried on the books at a residual 
value of $71,300. However, there has been recorded, for repairs and 
conversion, total expenditures amounting to $11,487,701.35. 

As you know, this vessel was transferred to the War Department 
for operation, and in consideration of which a bill was presented them 
for this amount. However, on October 27, 1942, the Director of the 
Bureau of the Budget advised the general counsel of the War Shipping 
Administration, in reply to his letter of Sept. 15, 1942, in part as 
follows: 


“After discussing this matter with representatives of the War 
Department and on examination of appropriations involved, it 
is my opinion that this expenditure might best be made from War 
Shipping Administration funds, which opinion accords with your 
previously expressed desires.” 

Should the expenditures for repairs and conversion be treated as 
expense or be capitalized as betterments, and if classified as better¬ 
ments, upon what life should depreciation be based. 

(Signed) Wm. U. Kirsch, 

Chief, Budget & Accounts Section, Division of Finance. 

Mr. Kirsch: The expenditures referred to above should be capital¬ 
ized as betterments and amortized over a period of 5 years. 

(Signed) J. M. Quinn, Comptroller. 


December 30, 1943. 







































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